<PAGE>
SCHEDULE 14C
(Rule 14C-101)
INFORMATION REQUIRED IN INFORMATION STATEMENT
SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14(c) of the Securities Exchange Act
of 1934
(Amendment No. )
[X] Filed by the Registrant
[_] Filed by a Party other than the Registrant
Check the appropriate box:
[X] Preliminary Information Statement [_] Confidential, For Use
of the Commission Only (as
[_] Definitive Information Statement permitted by Rule 14c-5(d)(2))
CALCOMP TECHNOLOGY, INC.
(Name of Registrant as Specified in Its Charter)
--------------------------------------------------
(Name of Person(s) Filing Information Statement, if Other Than Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_] Fee paid previously with preliminary materials:
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
CALCOMP TECHNOLOGY, INC.
2411 West La Palma Avenue
Anaheim, California 92801
June , 1999
Dear Stockholders:
The attached Information Statement is being furnished to stockholders of
CalComp Technology, Inc., a Delaware corporation (the "Company"), in
connection with the Plan of Complete Liquidation and Dissolution (the "Plan of
Liquidation and Dissolution") of the Company. The Plan of Liquidation and
Dissolution is attached to the Information Statement as Annex A. The
dissolution of the Company pursuant to Section 275 of the Delaware General
Corporation Law ("DGCL") and the Plan of Liquidation and Dissolution have been
approved by the Board of Directors of the Company, the holder of a majority of
the outstanding shares of Common Stock, par value $.01 per share (the "Common
Stock"), of the Company entitled to vote and the holder of all of the
outstanding shares of Series A Cumulative Redeemable Preferred Stock, $.01 par
value per share (the "Preferred Stock"), of the Company.
The attached Information Statement is being provided to you pursuant to Rule
14c-2 under the Securities Exchange Act of 1934, as amended. The Information
Statement contains a more detailed description of the Plan of Liquidation and
Dissolution. This Information Statement also constitutes the notice to the
Company's stockholders of taking a corporate action by written consent of the
stockholders, as required by Section 228(d) of the DGCL. I encourage you to
read the Information Statement, including Annex A, thoroughly.
In accordance with the DGCL, the Company's Fourth Amended and Restated
Certificate of Incorporation and the Certificate of Designation of the
Preferred Stock, Lockheed Martin Corporation, a Maryland corporation, as
holder of a majority of the outstanding shares of Common Stock entitled to
vote and holder of all of the outstanding shares of Preferred Stock, has
executed a written consent approving the dissolution of the Company pursuant
to Section 275 of the DGCL and the Plan of Liquidation and Dissolution.
Accordingly, stockholders of the Company are not being asked for, and are
requested not to send, proxies to vote their shares with respect to the Plan
of Liquidation and Dissolution. For that reason, no proxy card has been
enclosed for stockholders. No meeting of stockholders will be held to consider
approval of the Plan of Liquidation and Dissolution. The Plan of Liquidation
and Dissolution will not become effective until at least twenty days after the
mailing of this Information Statement.
Sincerely,
Arthur E. Johnson
Chairman of the Board
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Introduction............................................................. 1
Available Information.................................................... 3
Forward Looking Statements............................................... 3
Summary.................................................................. 4
The Stockholder Consent to the Plan of Liquidation and Dissolution..... 4
Background of the Plan of Liquidation and Dissolution.................. 4
The Plan of Liquidation and Dissolution................................ 7
Written Consent of Lockheed Martin to the Plan of Liquidation and
Dissolution............................................................. 9
Special Factors.......................................................... 9
The Plan of Complete Liquidation and Dissolution......................... 13
Certain Federal Income Tax Consequences.................................. 20
Business................................................................. 23
Market for Company's Common Equity and Related Stockholder Matters....... 31
Selected Consolidated Financial Data..................................... 32
Management's Discussion and Analysis of Financial Condition And Results
of Operations........................................................... 33
Security Ownership of Certain Beneficial Owners and Management........... 36
Relationship and Related Transactions With Lockheed Martin............... 37
Absence of Appraisal Rights.............................................. 43
Index to Financial Statements and Schedule............................... F-1
</TABLE>
<PAGE>
Mailed to Stockholders
on or about June , 1999
CALCOMP TECHNOLOGY, INC.
2411 West La Palma Avenue
Anaheim, California 92801
----------------
INFORMATION STATEMENT
----------------
INTRODUCTION
This Information Statement is being furnished to holders of the outstanding
shares of Common Stock, par value $.01 per share (the "Common Stock"), of
CalComp Technology, Inc., a Delaware corporation (the "Company"), in
connection with the written consent of Lockheed Martin Corporation, a Maryland
corporation ("Lockheed Martin"), the holder of a majority of the outstanding
shares of the Common Stock and the holder of all of the outstanding shares of
Series A Cumulative Redeemable Preferred Stock, par value $.01 per share (the
"Preferred Stock"), to the dissolution and liquidation of the Company pursuant
to a Plan of Complete Liquidation and Dissolution (the "Plan of Liquidation
and Dissolution"), as more fully described in this Information Statement. A
copy of the Plan of Liquidation and Dissolution is attached hereto as Annex A.
This Information Statement also provides certain information regarding
transactions between the Company and Lockheed Martin.
----------------
WE ARE NOT ASKING YOU FOR A PROXY AND
YOU ARE REQUESTED NOT TO SEND US A PROXY
----------------
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE FAIRNESS OR MERITS OF THE TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF
THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY
IS UNLAWFUL.
<PAGE>
Pursuant to the Plan of Liquidation and Dissolution, the Company will be
liquidated by (i) the sale (or sales) of substantially all of its remaining
assets and, (ii) after payment of all the claims, obligations and expenses
owing to the Company's creditors, by cash and in-kind distributions (if any)
to the holder of the Preferred Stock (up to the $60.0 million, plus accrued
and unpaid dividends, aggregate liquidation preference of the Preferred
Stock), with the remainder (if any) to holders of the Common Stock on a pro
rata basis, and, if deemed necessary, appropriate or desirable by the
Company's Board of Directors (the "Board of Directors"), by distributions of
its assets and funds from time to time to one or more liquidating trusts
established for the benefit of stockholders (subject to the claims of
creditors), or by a final distribution of its then remaining assets to a
liquidating trust established for the benefit of stockholders (subject to the
claims of creditors). Based on the anticipated value of the Company's assets
and the amounts owed to creditors of the Company, the Company does not believe
it will have any funds or assets remaining to make distributions to either
preferred or common stockholders. Therefore, it is highly unlikely that any
distributions will be made to stockholders.
Should the Board of Directors determine that one or more liquidating trusts
are necessary, appropriate or desirable, approval of the Plan of Liquidation
and Dissolution constitutes stockholder approval of the appointment by the
Board of Directors of one or more trustees to any such liquidating trusts and
the execution of liquidating trust agreements with the trustees on such terms
and conditions as the Board of Directors, in its absolute discretion, shall
determine. See "The Plan of Complete Liquidation and Dissolution" for a more
detailed description of the Plan of Liquidation and Dissolution. See also
"Contingent Liabilities; Contingency Reserve; Liquidating Trust" for further
information relating to circumstances when the establishment of a liquidating
trust might be necessary, appropriate or desirable.
In conformance with the Delaware General Corporation Law ("DGCL"), the
Company's Fourth Amended and Restated Certificate of Incorporation and the
Certificate of Designation of the Preferred Stock (the "Certificate of
Designation"), the affirmative vote of the holders of a majority of the
outstanding shares of Common Stock entitled to vote and the outstanding shares
of Preferred Stock, each voting separately as a class, is required to approve
the Plan of Liquidation and Dissolution. In accordance with the DGCL, Lockheed
Martin, as holder of a majority of the outstanding shares of Common Stock and
holder of all outstanding shares of Preferred Stock of the Company, has
executed and delivered a written consent approving the Plan of Liquidation and
Dissolution. Accordingly, the Company is not asking you for a proxy and you
are requested not to send us a proxy. For that reason, no proxy card has been
enclosed and no meeting of stockholders will be held to consider approval of
the Plan of Liquidation and Dissolution. The Plan of Liquidation and
Dissolution will not become effective, until at least twenty days after the
mailing of this Information Statement.
THIS INFORMATION STATEMENT IS FURNISHED BY THE COMPANY FOR INFORMATION
PURPOSES ONLY. This Information Statement is first being mailed on or about
June , 1999 to holders of record of Common Stock as of the close of business
on May 12, 1999 (the "Record Date"). As of the Record Date, 47,120,650 shares
of Common Stock and 1,000,000 shares of Preferred Stock were outstanding.
The Company intends to dissolve and liquidate and pay out the net proceeds
of the sale of substantially all of the assets and any other funds or assets
remaining in the Company to satisfy the Company's obligations to its
creditors, then if any funds or assets are remaining, to the holder of the
Preferred Stock, to the extent of the $60.0 million, plus accrued and unpaid
dividends, aggregate liquidation preference of the Preferred Stock, and then
to the holders of the Common Stock, on a pro rata basis, pursuant to the Plan
of Liquidation and Dissolution. The Company does not believe it will have any
funds or assets remaining to make distributions to either preferred or common
stockholders. Therefore, any discussions regarding a distribution to
stockholders are theoretical, and distributions to stockholders are highly
unlikely.
2
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "SEC"). Reports, proxy statements and
other information filed by the Company can be inspected and copied at the
public reference facilities at the SEC's office at Judiciary Plaza, 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549, at the SEC's Regional Office
at Seven World Trade Center, Suite 1300, New York, New York 10048 and at the
SEC's Regional Office at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material can be obtained from the Public
Reference Section of the SEC at Judiciary Plaza, 450 Fifth Street, N.W., Room
1024, Washington, D.C. 20549, at prescribed rates. Such reports, proxy
statements and other information concerning the Company can also be inspected
and copied at the offices of The National Association of Securities Dealers,
Inc., 1735 K Street, N.W., Washington, D.C. 20006. Such material may also be
accessed electronically by means of the SEC's home page on the Internet at
http://www.sec.gov.
FORWARD LOOKING STATEMENTS
This Information Statement contains statements which, to the extent that
they are not recitations of historical fact, constitute "forward looking
statements" within the meaning of Section 27A of the Securities Act of 1933,
as amended (the "Securities Act") and Section 21E of the Securities Exchange
Act of 1934 (the "Exchange Act"). The words "estimate," "anticipate,"
"project," "intend," "expect," and similar expressions are intended to
identify forward looking statements. All forward looking statements involve
risks and uncertainties, including, without limitation, statements and
assumptions with respect to sales of assets, estimated funding requirements
under the Plan for Orderly Shutdown and the Plan of Liquidation and
Dissolution, negotiated settlements with creditors, the outcome of
contingencies including litigation, the timing of the Plan for Orderly
Shutdown and the Plan of Liquidation and Dissolution and the availability of
sufficient funding therefor. Readers are cautioned not to place undue reliance
on these forward looking statements which speak only as of the date of this
Information Statement. The Company does not undertake any obligation to
publicly release any revisions to these forward looking statements to reflect
events, circumstances or changes in expectations after the date of this
Information Statement, or to reflect the occurrence of unanticipated events.
The forward looking statements in this document are intended to be subject to
the safe harbor protection provided by Sections 27A of the Securities Act and
21E of the Exchange Act. For a discussion identifying some important factors
that could cause actual results to vary materially from those anticipated in
the forward looking statements, see "Special Factors--Liquidity Crisis-Plan
for Orderly Shutdown," "The Plan of Complete Liquidation and Dissolution--
Sales of the Company's Remaining Assets" and "--Contingent Liabilities;
Contingency Reserve; Liquidation Trust" and "Risk Factors Affecting the Plan
for Orderly Shutdown and the Plan of Liquidation and Dissolution."
3
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SUMMARY
The following is a summary of certain information contained elsewhere in this
Information Statement. Reference is made to, and this summary is qualified in
its entirety by, the more detailed information contained in this Information
Statement and Annex A attached hereto. References in this Information Statement
to the "Company" shall be deemed to refer to the Company together with its
subsidiaries. Unless otherwise defined herein, capitalized terms used in this
summary have the respective meanings ascribed to them elsewhere in this
Information Statement or in the Annex attached hereto. Stockholders are urged
to read this Information Statement and the Annex hereto in their entirety.
THE STOCKHOLDER CONSENT
TO THE PLAN OF LIQUIDATION AND DISSOLUTION
Consent Required and
Received................... Pursuant to Section 275 of the DGCL, the
Company's Fourth Amended and Restated Certificate
of Incorporation and the Certificate of
Designation, the approval of the holders of a
majority of the shares of Common Stock and
Preferred Stock outstanding and entitled to vote,
each voting separately as a class, is required to
approve the Plan of Liquidation and Dissolution.
Lockheed Martin holds approximately 85% of the
outstanding Common Stock and 100% of the
outstanding Preferred Stock and has consented in
writing to the Plan of Liquidation and
Dissolution, which consent satisfies the
requirements of Section 275. See "Written Consent
of Lockheed Martin to the Plan of Liquidation and
Dissolution."
BACKGROUND OF THE PLAN OF LIQUIDATION AND DISSOLUTION
The Company................. The Company, formerly Summagraphics Corporation,
was originally incorporated under Delaware law in
1972 and is currently a majority-owned subsidiary
of Lockheed Martin. The Company developed and
manufactured computer graphics peripherals and
supplies, for personal, business and professional
applications. The principal executive offices of
the Company are located at 2411 West La Palma
Avenue, Anaheim, California 92803, and its
telephone number is (714) 821-2000.
Approval of Plan for
Orderly Shutdown.......... In a letter dated December 23, 1998, Lockheed
Martin notified the Company that it would not
increase the Company's credit availability needed
to fund the Company's current operations beyond
the $43 million then available under a Revolving
Credit Agreement and a Cash Management Agreement
(the "Credit Agreements"). On December 28, 1998,
the Company indicated its intent to accept
Lockheed Martin's proposal to fund a non-
bankruptcy orderly shut-down of the Company's
operations in accordance with a plan to be
proposed by the Company. As a result of this
liquidity crisis and after considering its lack
of strategic alternatives, in particular, given
the Company's inability to obtain funding from
sources other than Lockheed Martin, on January
14,
4
<PAGE>
1999, the Company's directors approved and
submitted the Company's plan for orderly shutdown
(the "Plan for Orderly Shutdown") to Lockheed
Martin for its review and approval. On January
15, 1999, the Company announced that it would
commence the Plan for Orderly Shutdown and the
Company completed a Secured Demand Loan Facility
("Secured Demand Loan") with Lockheed Martin,
pursuant to which Lockheed Martin agreed to
provide, subject to the terms and conditions set
forth in such facility, funding to the Company
and certain of its subsidiaries in addition to
the $43 million available under the Credit
Agreements to assist the Company in the non-
bankruptcy shutdown of its operations. In
addition, Lockheed Martin agreed to forebear from
exercising its rights and remedies to collect
amounts outstanding under the Credit Agreements
until the Secured Demand Loan is terminated. In
connection with the Plan for Orderly Shutdown, it
was anticipated that the Company would cause the
dissolution, merger or consolidation of its
subsidiaries with the Company and that the
Company, itself, would then proceed with its own
formal winding up and dissolution. On April 29,
1999, the Company's Board of Directors (a)
authorized the merger with and into CalComp
Technology, Inc. of all of the Company's
subsidiaries organized under the laws of any
state of the United States and (b) approved and
adopted the Plan of Liquidation and Dissolution.
See "The Plan of Liquidation and Dissolution."
Secured Demand Loan......... The Secured Demand Loan provides for Lockheed
Martin to make loans to the Company from time to
time up to an aggregate maximum available amount
(the "Maximum Available Amount"), agreed to by
Lockheed Martin, which may be increased by
Lockheed Martin, in its sole and absolute
discretion, upon requests for borrowing that are
in conformity with the cash requirements set
forth in the Plan for Orderly Shutdown. The
Maximum Available Amount is subject to a ceiling
("Maximum Available Amount Ceiling") of $51
million, an amount based on the Company's initial
estimate of loan proceeds needed to fully fund
the Plan for Orderly Shutdown. The Maximum
Available Amount, initially, was set at $11
million. At April 30, 1999, the Maximum Available
Amount had been increased to $20.1 million.
Lockheed Martin has the right to accept or
reject, in whole or in part, any request for
borrowing based on its determination, in its sole
discretion, as to whether the Company is
complying with, or making reasonable progress
with respect to, the Plan for Orderly Shutdown.
Loans under the Secured Demand Loan are to be
repaid at the earlier to occur of (i) the
business day following written demand by Lockheed
Martin or (ii) the Termination Date. The
"Termination Date" is defined as the earlier of
July 15, 1999 or the date on which Lockheed
Martin notifies the Company of termination based
on (x) Lockheed Martin's determination that the
Company is not reasonably complying with, and
making reasonable progress with respect to, the
Plan for Orderly Shutdown, which determination
may be made in the sole and absolute discretion
of Lockheed Martin, (y) the occurrence of a
5
<PAGE>
bankruptcy event (as defined in the Secured
Demand Loan), or (z) the breach by the Company of
the Secured Demand Loan or the accompanying
Security Agreement.
Under the Security Agreement, the Company granted
to Lockheed Martin a security interest in all of
the assets of the Company to secure the
obligations of the Company to Lockheed Martin
under the Secured Demand Loan. The Secured Demand
Loan also provides for certain other obligations
of the Company, including covenants of the
Company with respect to periodic notices, reports
and forecasts relating to the Plan for Orderly
Shutdown.
Liquidation Specialist...... The Secured Demand Loan also required the Company
to retain an independent third-party liquidation
specialist acceptable to Lockheed Martin to
review, validate and, to the extent deemed
necessary by Lockheed Martin in its sole and
absolute discretion, implement the Plan for
Orderly Shutdown. In March 1999, Brincko
Associates, Inc. was retained as the liquidation
specialist approved by Lockheed Martin, and Mr.
John P. Brincko was appointed the Chief Executive
Officer of the Company. After his appointment,
the Company conducted an updated and more
detailed analysis of the amount of loan proceeds
needed to fund the Plan for Orderly Shutdown, and
revised its estimate of funding needed under the
Secured Demand Loan to approximately $65 million.
Implementation of Plan for
Orderly Shutdown........... Since the announcement of the Plan for Orderly
Shutdown, the Company has ceased all
manufacturing, sales and marketing activities and
scaled back operations to a level designed to
allow the Company to sell or liquidate its assets
in a manner that takes into account the interests
of the Company's stockholders, creditors,
employees, customers and suppliers. As of April
30, 1999, the Company has consummated or entered
into agreements or letters of intent for sales of
substantially all of its assets, other than those
assets related to its CrystalJet(TM) business
which prior to the Plan for Orderly Shutdown had
been considered the Company's core strategic
business. No assurances can be given that all
pending transactions will be consummated.
Additionally, pursuant to the Plan for Orderly
Shutdown, the Company has issued notices to its
domestic employees under the Worker Adjustment
and Retraining Notification Act (W.A.R.N.) and,
as of April 30, 1999, has terminated 433
employees, or 84% of the Company's domestic
workforce. Non-U.S. employees have also been
terminated or notified of their scheduled
termination under applicable foreign laws.
Certain of the Company's sales and service
personnel, pending sales of specified assets, and
an administrative team (including the newly
appointed Chief Executive Officer) are expected
to wind up the operations of the Company through
the pre-dissolution shutdown process which is
expected to be substantially completed in July of
1999. Although the Company anticipates that it
will be able to negotiate reasonable settlement
amounts with its non-affiliated creditors, the
Company's ability to make payment on the agreed
settlement amounts will depend on receiving
sufficient cash from the
6
<PAGE>
sale of its remaining assets and securing
additional funding. See "Risk Factors Affecting
the Plan for Orderly Shutdown and the Plan of
Liquidation and Dissolution."
Risk Factors Affecting the
Plan for Orderly Shutdown
and the Plan of
Liquidation and
Dissolution................ The Company's latest estimate of funding needed
to complete the Plan for Orderly Shutdown and the
Plan of Liquidation and Dissolution indicates
estimated liabilities to be $14 million in excess
of proceeds expected from asset sales and the
maximum credit potentially available under the
Secured Demand Loan. As part of its review of the
Company's funding requirements under the Plan for
Orderly Shutdown and the Plan of Liquidation and
Dissolution, Lockheed Martin has agreed to
consider increasing the Maximum Available Amount
Ceiling, but there can be no assurance that such
increase will be granted or that Lockheed Martin
will authorize the disbursement of all funds
potentially available under the Secured Demand
Loan. Under the Secured Demand Loan, Lockheed
Martin has the right to accept or reject further
increases in the Maximum Available Amount based
on its determination, in its sole discretion,
that the Company is not complying with and making
reasonable progress with respect to the Plan for
Orderly Shutdown. No assurance can be given that
the Company will be able to settle with its
creditors at amounts estimated in the Plan for
Orderly Shutdown, that estimated cash inflows
from asset sales will occur, or that actual net
cash funding requirements will not exceed current
estimates for other reasons. Accordingly, there
is substantial uncertainty as to whether the
Company will be able to complete the Plan for
Orderly Shutdown and the Plan of Liquidation and
Dissolution. If the Company is unable to obtain
sufficient funds to complete the Plan for Orderly
Shutdown and the Plan of Liquidation and
Dissolution out of the proceeds from the sales of
its remaining assets and the Secured Demand Loan
or other financing, or it is unable to reach
acceptable settlements with all of its creditors,
the Company may be forced to seek protection from
creditors under Federal Bankruptcy law or may
become subject to an involuntary bankruptcy
proceeding. In the event of such a proceeding,
claims of secured creditors, such as Lockheed
Martin, may not be able to be repaid in full and
unsecured creditors may receive little, if
anything, for their claims. In any circumstance,
it is highly unlikely that holders of the
Company's Common Stock and Preferred Stock will
receive any distributions of funds or assets and
the Plan for Orderly Shutdown and the Plan of
Liquidation and Dissolution do not contemplate
any such distributions.
THE PLAN OF LIQUIDATION AND DISSOLUTION
Approval by the Board of
Directors and Lockheed
Martin .................... On April 29, 1999, the Board of Directors
determined that it was advisable that the Company
be dissolved and approved and adopted
7
<PAGE>
the Plan of Liquidation and Dissolution, subject
to stockholder approval. Lockheed Martin, as
holder of a majority of the outstanding shares of
Common Stock and holder of all of the outstanding
shares of Preferred Stock, executed a written
consent on May 12, 1999 approving the dissolution
of the Company and the Plan of Liquidation and
Dissolution. The Board of Directors believes that
the liquidation and dissolution of the Company in
accordance with the Plan of Liquidation and
Dissolution are in the best interests of the
Company, its creditors and stockholders and has
approved the Plan of Liquidation and Dissolution.
The Plan of Liquidation and Dissolution
represents, in the Board's opinion, the most
prudent way for the Company to discharge its
known liabilities, to provide for contingent and
unknown liabilities and to limit its exposure as
a result of future business activities. Among
other things, the Plan of Liquidation and
Dissolution gives the Board of Directors the
authority to sell all or substantially all of the
remaining assets of the Company, including the
Company's CrystalJet assets. The Board of
Directors' approval of the Plan of Liquidation
and Dissolution is based upon a number of factors
described in this Information Statement. See "The
Plan of Complete Liquidation and Dissolution--
Approval of the Board of Directors and Reasons
for Adopting the Plan."
Certain Tax Consequences.... The Company will recognize gain or loss for
United States federal income tax purposes on the
sales of its assets pursuant to the Plan of
Liquidation and Dissolution. After the approval
of the Plan of Liquidation and Dissolution and
until the liquidation is completed, the Company
will continue to be subject to income tax on its
taxable income. Upon distributions, if any, of
property to stockholders pursuant to the Plan of
Liquidation and Dissolution, the Company will
recognize gain or loss as if such property was
sold to the stockholders at its fair market
value, unless certain exceptions to the
recognition of gain or loss apply. It is unlikely
that there will be any material tax or tax
sharing payments payable at the corporate level
because of net operating losses incurred by the
Company. As a result of the liquidation of the
Company, stockholders (other than Lockheed
Martin) will recognize gain or loss equal to the
difference between the sum of the amount of cash
distributed to them and the fair market value (at
the time of distribution) of property distributed
to them and their tax basis for their shares of
the Common Stock or Preferred Stock. The Company
believes that it is highly unlikely that there
will be any funds or assets available for
distribution to preferred or common stockholders.
See "Certain Federal Income Tax Consequences."
No Appraisal Rights......... Under the DGCL, the holders of shares of the
Common Stock and Preferred Stock will not be
entitled to appraisal rights in connection with
the Plan of Liquidation and Dissolution.
8
<PAGE>
WRITTEN CONSENT OF LOCKHEED MARTIN TO THE PLAN OF LIQUIDATION AND DISSOLUTION
Section 275 of the Delaware General Corporation Law ("DGCL") permits a
Delaware corporation to dissolve if the dissolution is approved by a majority
of the board of directors and by stockholders holding a majority of the shares
entitled to vote thereon. Pursuant to the Company's Fourth Amended and
Restated Certificate of Incorporation and the Certificate of Designation,
holders of the Common Stock and Preferred Stock are entitled to separate votes
on the above matters. Lockheed Martin owns approximately 85% of the
outstanding Common Stock and 100% of the outstanding Preferred Stock and, on
May 12, 1999, Lockheed Martin executed and delivered to the Company its
written consent to the Plan of Liquidation and Dissolution. The written
consent executed and delivered by Lockheed Martin satisfies the stockholder
approval requirements of Section 275 of the DGCL. Accordingly, no vote of any
other stockholder is necessary and stockholder votes are not being solicited.
The Plan of Liquidation and Dissolution will become effective not earlier
than twenty (20) days after the mailing of this Information Statement. Once
the Plan of Liquidation and Dissolution is effective, the Company intends to
undertake the actions contemplated by the Plan of Liquidation and Dissolution,
including selling all or substantially all of the Company's remaining assets,
including its CrystalJet assets, at such times as the Board of Directors, in
its absolute discretion, deems necessary, appropriate or advisable. Approval
of the Plan of Liquidation and Dissolution will also constitute, to the
fullest extent permitted by law, approval of the sale of such assets by the
Company not earlier than twenty (20) days after the mailing of this
Information Statement on such terms and conditions as the Board of Directors
in its absolute discretion may determine.
This Information Statement is first being mailed to stockholders on or about
June , 1999.
SPECIAL FACTORS
Background and Summary of Significant Developments
Transition to CrystalJet Technology. The Company has been a supplier of both
input and output computer graphics peripheral products consisting of (i)
printers (including plotters), (ii) cutters, (iii) digitizers, and (iv) large
format scanners. In general, the Company's products were designed for use in
the computer aided design and manufacturing ("CAD/CAM"), printing and
publishing, and graphic arts markets, both domestically and internationally.
The Company also maintained service, product support and technical assistance
programs for its customers and sold software, supplies and after-warranty
service.
In recent years, the Company had begun transitioning its traditional pen,
electrostatic and most thermal technology products to inkjet plotters and
printers. Generally, inkjet technology products provide increased user
productivity compared to traditional pen plotters and solid area fill
capability for applications requiring graphic imaging. By the end of 1997, the
Company had substantially completed its strategy to discontinue its non-inkjet
printer and plotter products.
In the fourth quarter of 1997, the Company completed the development of a
new line of wide-format digital printers based on its proprietary piezo inkjet
technology obtained through the acquisition of Topaz Technologies, Inc.
("Topaz") in 1996. This new line of printers was marketed under the
"CrystalJet(TM)" name and targeted at the graphic arts industry. The Company
began shipping the initial market development and demonstration units of these
printers in the first quarter of 1998. Although volume shipments to customers
of CrystalJet products commenced in the second quarter and increased during
the remainder of the fiscal year, the projected profitability of the
CrystalJet products was dependent on achieving greater production volumes and
wider market acceptance than could reasonably be anticipated to occur in the
near term and would have required substantial infusions of new capital which
the Company was unable to obtain. Although the new CrystalJet technology
proved viable, the Company believes that production delays, technical
difficulties in the manufacturing processes and a failure to gain timely
market acceptance resulted in continuing operating losses and negative cash
flow, which materially and adversely affected the Company's business plan for
the CrystalJet technology and, in significant part, resulted in the Company's
liquidity crisis discussed further below.
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As part of its piezo inkjet technology development, in March 1998, the
Company entered into a Patent License and Joint Development Agreement (the
"Joint Development Agreement") with Eastman Kodak Company ("Kodak") that
provided an initial payment of $20 million in April 1998 and contemplated an
additional $16 million in cash over the term to be funded incrementally upon
the achievement of certain milestones and the occurrence of certain events.
The Company believes that the first three milestones were achieved in 1998
entitling it to payments totaling $7 million; however, only the first $2
million milestone payment has been received from Kodak because Kodak has
disputed the attainment of the third milestone and withheld the second
milestone payment. See "Business--Historic Business--Dispute with Kodak."
In July 1998, the Company engaged Salomon Smith Barney as an investment
advisor to assist the Company in the consideration of strategic alternatives.
In October 1998, the Company made the formal decision to focus its efforts and
resources on the CrystalJet product line and to divest its input device,
cutter, and non-CrystalJet service and support businesses as these businesses
were considered non-strategic. In connection with this decision, the Company
recorded a one-time non-cash impairment charge in the fourth quarter of $72
million to write-down the carrying value of the net assets of these businesses
to their estimated fair value. In addition, the Company evaluated the business
model and strategy of its continuing operations. As a result, in the fourth
quarter, the Company recorded non-cash charges of $40.1 million related to the
impairment of certain long-lived assets, including goodwill.
Failure to Obtain Bank Financing. Throughout the first half of 1998, the
Company attempted to supplement the credit available to it under the Credit
Agreements with third party financing. In March of 1998, the Company, after
determining that the then remaining amounts available under the Credit
Agreements were not adequate to fund the Company's near term operations,
entered into a letter of intent with a bank which contemplated an additional
$25 million senior line of credit. However, the Company was not able to reach
an agreement with the bank, and was unsuccessful in its efforts to obtain
other third party financing.
Debt Exchange. In July 1998, the Company entered into an Exchange Agreement
with Lockheed Martin, its majority shareholder, principal creditor and source
of capital funding, pursuant to which, the Company exchanged $60.0 million of
outstanding debt owed to Lockheed Martin under a Revolving Credit Agreement
for 1,000,000 shares of Preferred Stock (the "Debt Exchange"). In connection
with the Debt Exchange, the Revolving Credit Agreement was amended to reduce
the amount of borrowing available to the Company under that agreement from $73
million to $13 million. In August, September, and November 1998, a related
Cash Management Agreement was amended which ultimately increased the amount of
borrowing available to the Company from $2 million to $30 million under the
Cash Management Agreement, thereby providing a maximum borrowing availability
of $43 million to the Company under the Credit Agreements (which was fully
drawn in January 1999 and remains outstanding).
Liquidity Crisis--Plan for Orderly Shutdown. In a letter dated December 23,
1998, Lockheed Martin notified the Company that it would not increase the
Company's credit availability needed to fund the Company's continuing
operations beyond the $43 million then available under the Credit Agreements,
but indicated it would consider funding an orderly shutdown. On December 28,
1998, the Company indicated its intent to accept Lockheed Martin's proposal to
fund a non-bankruptcy orderly shut-down of the Company's operations in
accordance with a plan to be proposed by the Company. As a result of this
liquidity crisis and after considering its lack of strategic alternatives, in
particular, given the Company's inability to obtain funding from sources other
than Lockheed Martin, on January 14, 1999, the Company's directors approved
and submitted the Company's plan for orderly shutdown (the "Plan for Orderly
Shutdown") to Lockheed Martin for its review and approval. On January 15,
1999, the Company announced that it would commence the Plan for Orderly
Shutdown and the Company completed a Secured Demand Loan Facility ("Secured
Demand Loan") with Lockheed Martin, pursuant to which Lockheed Martin agreed
to provide, subject to the terms and conditions set forth in such facility,
funding to the Company in addition to the $43 million available under the
Credit Agreements to assist the Company in the non-bankruptcy shutdown of its
operations. In addition, Lockheed Martin agreed to forebear from exercising
its rights and remedies to collect amounts outstanding under the Credit
Agreements until the Secured Demand Loan is terminated. In connection with the
Plan for Orderly Shutdown, it was anticipated that
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the Company would cause the dissolution, merger or consolidation of its
subsidiaries with the Company and that the Company, itself, would then proceed
with its own formal winding up and dissolution. On April 29, 1999, the
Company's Board of Directors (a) authorized the merger with and into CalComp
Technology, Inc. of all of the Company's subsidiaries organized under the laws
of any state of the United States and (b) approved and adopted the Plan of
Liquidation and Dissolution. See "The Plan of Liquidation and Dissolution."
Since the announcement of the Plan for Orderly Shutdown, the Company has
ceased all manufacturing, sales and marketing activities and scaled back
operations to a level designed to allow the Company to sell or liquidate its
assets in a manner that takes into account the interests of the Company's
stockholders, creditors, employees, customers and suppliers. As of April 30,
1999, the Company has consummated or entered into letters of intent for sales
of substantially all of its assets, other than those assets related to its
CrystalJet business. However, no assurances can be given that all pending
transactions will be consummated. Additionally, pursuant to the Plan for
Orderly Shutdown, the Company has issued notices to its domestic employees
under the Worker Adjustment and Retraining Notification Act (W.A.R.N.) and, as
of April 30, 1999, has terminated 433 employees, or 84% of the Company's
domestic workforce. Non-U.S. employees have also been terminated or notified
of their scheduled termination under applicable foreign laws. Certain of the
Company's sales and service personnel, pending sales of specified assets, and
an administrative team (including the newly appointed Chief Executive Officer)
are expected to wind up the operations of the Company through the
pre-dissolution shutdown process which is expected to be substantially
completed in July of 1999. Although the Company anticipates that it will be
able to negotiate acceptable settlement amounts with its non-affiliated
creditors, the Company's ability to make payment on the agreed settlement
amounts will depend on receiving sufficient cash from the sale of its
remaining assets and securing additional funding. See "Risk Factors Affecting
the Plan for Orderly Shutdown and the Plan of Liquidation and Dissolution."
Secured Demand Loan. The Secured Demand Loan provides for Lockheed Martin to
make loans to the Company from time to time up to an aggregate maximum
available amount (the "Maximum Available Amount"), agreed to by Lockheed
Martin, which may be increased by Lockheed Martin, in its sole and absolute
discretion, upon requests for borrowing that are in conformity with the cash
requirements set forth in the Plan for Orderly Shutdown. The Maximum Available
Amount is subject to a ceiling ("Maximum Available Amount Ceiling") of $51
million, an amount based on the Company's initial estimate of loan proceeds
needed to fully fund the Plan for Orderly Shutdown. The Maximum Available
Amount, initially, was set at $11 million. At April 30, 1999, the Maximum
Available Amount had been increased to $20.1 million. Lockheed Martin has the
right to accept or reject, in whole or in part, any request for borrowing
based on its determination, in its sole discretion, as to whether the Company
is complying with, or making reasonable progress with respect to, the Plan for
Orderly Shutdown. Loans under the Secured Demand Loan are to be repaid at the
earlier to occur of (i) the business day following written demand by Lockheed
Martin or (ii) the Termination Date. The "Termination Date" is defined as the
earlier of July 15, 1999 or the date on which Lockheed Martin notifies the
Company of termination based on (x) Lockheed Martin's determination that the
Company is not reasonably complying with, and making reasonable progress with
respect to, the Plan for Orderly Shutdown, which determination may be made in
the sole and absolute discretion of Lockheed Martin, (y) the occurrence of a
bankruptcy event (as defined in the Secured Demand Loan), or (z) the breach by
the Company of the Secured Demand Loan or the accompanying Security Agreement.
The Secured Demand Loan also required the Company to retain an independent
third-party liquidation specialist acceptable to Lockheed Martin to review,
validate and, to the extent deemed necessary by Lockheed Martin in its sole
and absolute discretion, implement the Plan for Orderly Shutdown. In March
1999, Brincko Associates, Inc. was retained as the liquidation specialist
approved by Lockheed Martin, and Mr. John P. Brincko was appointed the Chief
Executive Officer of the Company. After his appointment, the Company conducted
an updated and more detailed analysis of the amount of loan proceeds needed to
fund the Plan for Orderly Shutdown, and revised its estimate of funding needed
under the Secured Demand Loan to approximately $65 million.
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Under the Security Agreement, the Company granted to Lockheed Martin a
security interest in all of the assets of the Company to secure the
obligations of the Company to Lockheed Martin under the Secured Demand Loan.
The Secured Demand Loan also provides for certain other obligations of the
Company, including covenants of the Company with respect to periodic notices,
reports and forecasts relating to the Plan for Orderly Shutdown.
Risks to Successful Completion of Plan for Orderly Shutdown and Plan of
Liquidation and Dissolution. The Company's latest estimate of funding required
to complete the Plan for Orderly Shutdown and the Plan of Liquidation and
Dissolution indicates estimated liabilities to be $14 million in excess of
proceeds expected from asset sales and the maximum credit potentially
available under the Secured Demand Loan. As part of its review of the
Company's funding requirements under the Plan for Orderly Shutdown and the
Plan of Liquidation and Dissolution, Lockheed Martin has agreed to consider
increasing the Maximum Available Amount Ceiling, but there can be no assurance
that such increase will be granted or that Lockheed Martin will authorize the
disbursement of all funds potentially available under the Secured Demand Loan.
Under the Secured Demand Loan, Lockheed Martin has the right to accept or
reject further increases in the Maximum Available Amount based on its
determination, in its sole discretion, that the Company is not complying with
and making reasonable progress with respect to the Plan for Orderly Shutdown.
No assurance can be given that the Company will be able to settle with its
creditors at amounts estimated in the Plan for Orderly Shutdown, that
estimated cash inflows from asset sales will occur, or that actual net cash
funding requirements will not exceed current estimates for other reasons.
Accordingly, there is substantial uncertainty as to whether the Company will
be able to complete the Plan for Orderly Shutdown and the Plan of Liquidation
and Dissolution. If the Company is unable to obtain sufficient funds to
complete the Plan for Orderly Shutdown and the Plan of Liquidation and
Dissolution out of the proceeds from the sales of its remaining assets and the
Secured Demand Loan or other financing or it is unable to reach acceptable
settlements with all of its creditors, the Company may be forced to seek
protection from creditors under Federal Bankruptcy law or may become subject
to an involuntary bankruptcy proceeding. In the event of such a proceeding,
claims of secured creditors, such as Lockheed Martin, may not be able to be
repaid in full and unsecured creditors may receive little, if anything, for
their claims. In any circumstance, it is highly unlikely that holders of the
Company's Common Stock and Preferred Stock will receive any distributions of
funds or assets, and the Plan for Orderly Shutdown and Plan of Liquidation and
Dissolution do not contemplate any such distributions.
Delisting and Deregistration of Common Stock. On January 27, 1999, the
Company's Common Stock was delisted from the Nasdaq National Market System due
to the Company's failure to maintain certain listing requirements. At the
present time, the Company's Common Stock continues to trade on the over-the-
counter bulletin board market maintained by Nasdaq. It is expected that the
Company's Common Stock will be deregistered under Rule 12g-4 of the Securities
Exchange Act of 1934 in connection with the Company's anticipated formal
winding up and dissolution.
Potential Conflicts of Interest
As the majority stockholder, principal secured creditor ($20.1 million at
April 30, 1999) and principal unsecured creditor ($43 million at April 30,
1999), Lockheed Martin can exercise a controlling influence over the Plan for
Orderly Shutdown and the Plan of Liquidation and Dissolution. Various
conflicts of interest could arise from Lockheed Martin's status as controlling
stockholder and principal creditor. See "Relationship and Related Transaction
With Lockheed Martin."
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THE PLAN OF COMPLETE LIQUIDATION AND DISSOLUTION
General
The Plan of Liquidation and Dissolution was adopted by the Board of
Directors on April 29, 1999 and approved by Lockheed Martin as the holder of a
majority of the outstanding shares of Common Stock and all of the outstanding
shares of Preferred Stock pursuant to a written consent dated May 12, 1999.
The material features of the Plan of Liquidation and Dissolution are
summarized below. A copy of the Plan of Liquidation and Dissolution is
attached as Annex A to this Information Statement. Stockholders are urged to
read the Plan of Liquidation and Dissolution in its entirety.
Approval of the Board of Directors and Reasons for Adopting the Plan of
Liquidation and Dissolution
The Board believes that it is in the best interests of the Company, its
creditors and stockholders to implement the Plan of Liquidation and
Dissolution and provide to the fullest extent possible for payment of the
Company's obligations. In the Board's opinion, the Plan of Liquidation and
Dissolution represents the most prudent way for the Company to discharge its
known liabilities, to provide for contingent and unknown liabilities and to
limit its exposure as a result of future business activities. The Board also
believes that, in furtherance of the Plan for Orderly Shutdown, liquidation
and dissolution of the Company will be more beneficial to the Company's
creditors than would any available alternative thereto, including bankruptcy.
Following dissolution, the Company will continue its corporate existence under
the DGCL solely for the purpose of engaging in activities appropriate to or
consistent with the winding up and liquidation of its business and affairs.
This will permit the Company to take the steps necessary to discharge its
liabilities to the fullest extent possible and to provide for the distribution
of its remaining funds or assets, if any, to the preferred and the common
stockholders. The Company does not believe it will have any funds or assets
available for distribution to preferred or common stockholders. Therefore, it
is highly unlikely that any distributions will be made to any stockholders.
Moreover, the Preferred Stock has a $60.0 million, plus accrued and unpaid
dividends, liquidation preference over the holders of Common Stock. Following
dissolution, the Company will not be authorized to engage in any business
activities other than those related to the winding-up of its affairs and
preserving the value of its remaining assets pending the sale thereof, thus
limiting the Company's exposure for business activities unrelated to the
liquidation of the Company's assets and the winding-up of its business.
The anticipated tax treatment of the Plan of Liquidation and Dissolution is
set forth under "Certain Federal Income Tax Consequences." No ruling has been
requested from the IRS with respect to the anticipated tax treatment of the
Plan of Liquidation and Dissolution and the Company will not seek an opinion
of counsel with respect to the anticipated tax treatment. The failure to
obtain a ruling from the IRS or an opinion of counsel results in less
certainty that the anticipated tax treatment summarized therein will be
obtained. If any of the conclusions stated under "Certain Federal Income Tax
Consequences" proves to be incorrect, the result could be increased taxation
at the corporate and/or stockholder level, thus reducing the benefit to the
creditors and possibly stockholders and the Company from the liquidation. If
it were to be determined that distributions, if any, made pursuant to the plan
of liquidation and dissolution were not liquidating distributions, the result
could be treatment of distributions as dividends taxable at ordinary rates. It
is unlikely that there will be any material tax or tax sharing payments
payable at the corporate level because of net operating losses incurred by the
Company.
Plan Expenses and Indemnification
The Plan of Liquidation and Dissolution specifically contemplates that the
Board of Directors may authorize the payment of a retainer fee to a law firm
or law firms selected by the Board of Directors for legal fees and
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expenses of the Company, including, among other things, to cover any costs
payable pursuant to the indemnification of the Company's officers or members
of the Board of Directors provided by the Company pursuant to its Fourth
Amended and Restated Certificate of Incorporation and Bylaws or the DGCL or
otherwise.
In addition, in connection with and for the purpose of implementing and
assuring completion of the Plan of Liquidation and Dissolution, the Company
may, in the absolute discretion of the Board of Directors, pay any brokerage,
agency and other fees and expenses of persons rendering services to the
Company in connection with the collection, sale, exchange or other disposition
of the Company's property and assets and the implementation of the Plan of
Liquidation and Dissolution.
The Company shall continue to indemnify its officers, directors, employees
and agents in accordance with its Fourth Amended and Restated Certificate of
Incorporation and Bylaws and any contractual arrangements, for actions taken
in connection with the Plan of Liquidation and Dissolution and the winding up
of the affairs of the Company. The Board of Directors, in its absolute
discretion, is authorized to obtain and maintain insurance as may be
necessary, appropriate or advisable to cover such obligations. See "--Conduct
of the Company following Adoption of the Plan of Liquidation and Dissolution."
Principal Provisions of the Plan of Liquidation and Dissolution
Once the Plan of Liquidation and Dissolution is effective, the steps below
will be completed at such times as the Board of Directors, in its absolute
discretion, deems necessary, appropriate or advisable. The Plan of Liquidation
and Dissolution permits the Board of Directors to instruct the officers of the
Company to delay the taking of any of the following steps until the Company
has performed such actions as the Board of Directors or such officers
determine to be necessary, appropriate or advisable for the Company to
maximize the value of the Company's assets upon liquidation; provided that
such steps may not be delayed longer than is permitted by applicable law.
(a) A Certificate of Dissolution will be filed with the State of Delaware
pursuant to Section 275 of the DGCL. The dissolution of the Company will
become effective, in accordance with Section 275 of the DGCL, upon proper
filing of the Certificate of Dissolution with the Secretary of State or
upon such later date as may be specified in the Certificate of Dissolution
(the "Dissolution Date"), but in no event later than ninety (90) days after
the filing. Pursuant to the DGCL, the Company will continue to exist for
three years after the Dissolution Date or for such longer period as the
Delaware Court of Chancery shall direct, for the purpose of prosecuting and
defending suits, whether civil, criminal or administrative, by or against
it, and enabling the Company gradually to settle and close its business, to
dispose of and convey its property, to discharge its liabilities and to
distribute to its stockholders any remaining assets, but not for the
purpose of continuing the business for which the Company was organized.
(b) From and after the Dissolution Date, to the extent it has not already
done so, the Company will cease all of its business activities and shall
withdraw from any jurisdiction in which it is qualified to do business,
except and insofar as necessary for the sale of its remaining assets,
including its CrystalJet assets, and for the proper winding up of the
Company pursuant to Section 278 of the DGCL.
(c) The officers of the Company will negotiate and consummate the sales
of all of the remaining assets and properties of the Company, including the
CrystalJet related assets and including the possible assumption by the
purchaser or purchasers of any or all liabilities of the Company, insofar
as the Board of Directors deems such sales necessary, appropriate or
advisable. It is not anticipated that any further stockholder votes will be
solicited with respect to the approval of the specific terms of any
particular sales of assets approved by the Board of Directors, including
the sales of the CrystalJet assets.
(d) The Plan of Liquidation and Dissolution provides that the Board of
Directors will liquidate the Company's assets in accordance with applicable
provisions of the DGCL, including Sections 280 or 281. Without limiting the
flexibility of the Board of Directors, the Board of Directors may, at its
option, instruct the officers of the Company to follow the procedures set
forth in Sections 280 and 281(a) of the DGCL
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which instruct such officers to: (i) give notice of the dissolution to all
persons having a claim against the Company and provide for the rejection of
any such claims in accordance with Section 280 of the DGCL; (ii) offer to
any claimant on a contract whose claim is contingent, conditional or
unmatured security in an amount sufficient to provide compensation to the
claimant if the claim matures, and petition the Delaware Court of Chancery
to determine the amount and form of security sufficient to provide
compensation to any such claimant who rejects such offer in accordance with
Section 280 of the DGCL; (iii) petition the Delaware Court of Chancery to
determine the amount and form of security which would be reasonably likely
to be sufficient to provide compensation for (A) claims that are the
subject of pending litigation against the Company, and (B) claims that have
not been made known to the Company at the time of dissolution, but are
likely to arise or become known within five (5) years (or longer in the
discretion of the Delaware Court of Chancery), each in accordance with
Section 280 of the DGCL; (iv) pay, or make adequate provision for payment
of, all claims made against the Company and not rejected, in accordance
with Section 280 of the DGCL; (v) post all security offered and not
rejected and all security ordered by the Delaware Court of Chancery in
accordance with Section 280 of the DGCL; and (vi) pay, or make adequate
provision for payment of, all other claims that are mature, known and
uncontested or that have been finally determined to be owing by the
Company.
Notwithstanding the foregoing, the Company shall not be required to
follow the procedures described in Section 280 of the DGCL, and the
adoption of the Plan of Liquidation and Dissolution by the Company's
preferred and common stockholders shall constitute full and complete
authority for the Board of Directors and the officers of the Company,
without further stockholder action, to proceed with the dissolution and
liquidation of the Company in accordance with any applicable provision of
the DGCL, including, without limitation, Section 281(b) thereof, including
the adoption of a plan of distribution as contemplated by such section.
(e) The Company may, from time to time, make liquidating distributions of
the remaining funds and unsold assets of the Company, if any, in cash or in
kind, to the holders of record of Preferred Stock and Common Stock at the
close of business on the Dissolution Date. Such liquidating distributions,
if any, will be made first to Lockheed Martin as the sole holder of all of
the outstanding shares of Preferred Stock until Lockheed Martin has
received the full $60.0 million, plus accrued and unpaid dividends,
liquidation preference for the outstanding shares of Preferred Stock, and
then to the holders of Common Stock on a pro rata basis; provided that in
the opinion of the Board of Directors adequate provision has been made for
the payment, satisfaction and discharge of all known, unascertained or
contingent debts, obligations and liabilities of the Company (including
costs and expenses incurred and anticipated to be incurred in connection
with the sale of assets and complete liquidation of the Company). All
determinations as to the time for and the amount and kind of distribution
to stockholders will be made by the Board of Directors in its absolute
discretion and in accordance with Section 281 of the DGCL. No assurances
can be given that available cash and amounts received on the sale of assets
will be adequate to provide for the Company's obligations, liabilities,
expenses and claims, and to make any cash distributions to stockholders.
Based on the anticipated value of the Company's assets and the amounts owed
to creditors of the Company, the Company does not believe it will have any
funds or assets remaining to make distributions to either preferred or
common stockholders. Therefore, it is highly unlikely that any
distributions will be made to stockholders.
(f) If deemed necessary by the Board of Directors for any reason, the
Company may, from time to time, transfer any of its unsold assets to one or
more trusts established for the benefit of stockholders (subject to the
claims of creditors) which property would thereafter be sold or distributed
on terms approved by its trustees. If all of the Company's assets are not
sold or distributed prior to the third anniversary of the Dissolution Date,
or such longer period as the Delaware Court of Chancery may direct, the
Company shall transfer in final distribution such remaining assets to a
trust. The Board of Directors may also elect in its discretion to transfer
the Contingency Reserve (as defined below), if any, to such a trust. Any of
such trusts are referred to herein as "liquidating trusts." Notwithstanding
the foregoing, to the extent that a distribution or transfer of any asset
cannot be effected without the consent of a governmental authority, no such
distribution or transfer shall be effected without such consent. In the
event of a transfer of assets to a
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liquidating trust, the Company would distribute, first to the holder of its
Preferred Stock and then to holders of its Common Stock, beneficial
interests in any such liquidating trust or trusts. It is anticipated that
the interests in any such trusts will not be transferable; hence, although
the recipients of the interests would be treated for tax purposes as having
received their pro rata share of property transferred to the liquidating
trust or trusts and will thereafter take into account for tax purposes
their allocable portion of any income, gain or loss realized by such
liquidating trust or trusts, the recipients of the interests will not
realize the value thereof unless and until such liquidating trust or trusts
distributes cash or other assets to them. The Plan of Liquidation and
Dissolution authorizes the Board of Directors to appoint one or more
individuals or entities to act as trustee or trustees of the liquidating
trust or trusts and to cause the Company to enter into a liquidating trust
agreement or agreements with such trustee or trustees on such terms and
conditions as may be approved by the Board of Directors. Approval of the
Plan of Liquidation and Dissolution also will constitute the approval by
the Company's stockholders of any such appointment and any liquidating
trust agreement or agreements. For further information relating to
liquidating trusts, the appointment of trustees and the liquidating trust
agreements, reference is made to "Contingent Liabilities; Contingency
Reserve; Liquidating Trusts."
(g) The Company will close its stock transfer books and discontinue
recording transfers of shares of Preferred Stock and Common Stock on the
Dissolution Date, at which time the Company's capital stock and stock
certificates evidencing the Preferred Stock and the Common Stock will be
treated as no longer being outstanding.
Sales of the Company's Remaining Assets
The Plan of Liquidation and Dissolution gives the Board of Directors, to the
fullest extent permitted by law, the authority to sell all or any portion of
the remaining assets of the Company before or after the Dissolution Date. The
only significant remaining assets of the Company to be sold under the Plan of
Liquidation or Dissolution or otherwise are certain remaining intellectual
property rights, including certain intellectual property rights relating to
the Company's CrystalJet printers and certain other CrystalJet related assets.
See "Special Factors-- General Background." Stockholder approval of the Plan
of Liquidation and Dissolution will also constitute, to the fullest extent
permitted by law, approval of the sale of any of such assets by the Company on
such terms and conditions as the Board of Directors in its absolute discretion
may determine.
Additional agreements for the sale of such assets may be entered into prior
to the effectiveness of the Plan of Liquidation and Dissolution and, if
entered into, may be contingent upon the effectiveness of stockholder approval
of the Plan of Liquidation and Dissolution. Approval of the Plan of
Liquidation and Dissolution will constitute approval of any such agreements
(to the extent that such approval is required, and if required, to the fullest
extent permitted by law). Sales of the Company's assets will be made on such
terms as are approved by the Board of Directors and may be conducted by
competitive bidding or privately negotiated sales. Any sales will only be made
after the Board of Directors has determined that any such sale is in the best
interests of the Company's creditors and stockholders. It is not anticipated
that any future stockholder approval will be solicited with respect to the
specific terms of any particular sales of assets approved by the Board of
Directors. The Company does not anticipate amending or supplementing this
Information Statement to reflect any such agreement or sale. The prices at
which the Company will be able to sell its remaining various assets will
depend largely on factors beyond the Company's control, including, without
limitation, the compatibility of the Company's intellectual property rights
with the most likely purchasers of such rights, the extent to which such
intellectual property rights are viewed as valuable by such potential
purchasers and the condition of financial markets and the availability of
financing to prospective purchasers of assets. In addition, the Company may
not obtain as high a price for its assets as it might secure if the Company
was not in liquidation.
Conduct of the Company Following Adoption of the Plan of Liquidation and
Dissolution
As previously discussed, since the announcement of the Plan for Orderly
Shutdown, the Company has ceased all manufacturing, sales and marketing
activities and scaled back operations to a level designed to allow
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the Company to sell or liquidate its assets in a manner that takes into
account the interests of the Company's stockholders, creditors, employees,
customers and suppliers. As of April 30, 1999, the Company has consummated or
entered into agreements or letters of intent for sales of substantially all of
its assets, other than those assets related to its CrystalJet business which
prior to the Plan for Orderly Shutdown had been considered the Company's core
strategic business.
Following the Dissolution Date, the Company's activities will be limited to
winding up its affairs, taking such action as may be necessary to preserve the
value of its assets and distributing its assets in accordance with the Plan of
Liquidation and Dissolution. The Company will seek to distribute or liquidate
all of its assets in such manner and upon such terms as the Board of Directors
determines to be in the best interests of the Company's creditors and
stockholders.
Pursuant to the Plan of Liquidation and Dissolution, the Company shall
continue to indemnify its officers, directors, employees and agents in
accordance with its Fourth Amended and Restated Certificate of Incorporation
and Bylaws and any contractual arrangements, for actions taken in connection
with the Plan of Liquidation and Dissolution and the winding up of the affairs
of the Company. The Board of Directors, in its absolute discretion, is
authorized to obtain and maintain insurance as may be necessary, appropriate
or advisable to cover the Company's indemnification obligations under the Plan
of Liquidation and Dissolution.
Contingent Liabilities; Contingency Reserve; Liquidating Trust
Under the DGCL, the Company is required, in connection with its dissolution,
to the fullest extent possible, to pay or provide for payment of all of its
liabilities and obligations. Following the Dissolution Date, the Company will
pay, to the extent of its funds and assets available, all expenses and fixed
and other known liabilities, or set aside as a contingency reserve, assets
which it believes to be adequate for payment thereof (the "Contingency
Reserve").
The Company is currently unable to estimate accurately the amount of any
Contingency Reserve which may be required, but any such amount (in addition to
any cash contributed to a liquidating trust, if one is utilized) will be
deducted before the determination of amounts available for distribution to
stockholders. Based on the anticipated value of the Company's assets and the
amounts owed to creditors of the Company, the Company does not believe it will
have any funds or assets remaining to make distributions to either preferred
or common stockholders. Therefore, it is highly unlikely that any
distributions will be made to stockholders.
The actual amount of any Contingency Reserve will be based upon estimates
and opinions of management and the Board of Directors and derived from review
of the Company's estimated expenses, including, without limitation,
anticipated compensation payments, estimated legal and accounting fees, rent,
payroll and other taxes payable, miscellaneous office expenses and expenses
accrued in the Company's financial statements. There can be no assurance that
the Contingency Reserve in fact will be sufficient. After the liabilities,
expenses and obligations for which the Contingency Reserve had been
established have been satisfied in full, the Company will distribute to its
stockholders any remaining portion of the Contingency Reserve. The remaining
portion of the Contingency Reserve will first be paid to the holder of the
Preferred Stock (to the extent of the $60.0 million, plus accrued and unpaid
dividends, aggregate liquidation preference of the Preferred Stock), then, if
any funds remain, to the holders of Common Stock on a pro rata basis. The
Company believes that it is highly unlikely that it will have any funds or
assets available for distribution to preferred or common stockholders.
If deemed necessary, appropriate or desirable by the Board of Directors for
any reason, the Company may, from time to time, transfer any of its unsold
assets to one or more liquidating trusts established for the benefit of
stockholders (subject to the claims of creditors), which property would
thereafter be sold or distributed on terms approved by its trustees. The Board
of Directors and management may determine to transfer assets to a liquidating
trust in circumstances where the nature of an asset is not susceptible to
distribution (for example, interests in intangibles) or where it would not be
in the best interests of the Company and its creditors and stockholders for
such assets to be distributed directly to the creditors or stockholders at
such time. If all of the
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Company's assets (other than the Contingency Reserve) are not sold or
distributed prior to the third anniversary of the Dissolution Date, the
Company may transfer in final distribution such remaining assets to a
liquidating trust. The Board of Directors may also elect in its discretion to
transfer the Contingency Reserve, if any, to such a liquidating trust.
Notwithstanding the foregoing, to the extent that the distribution or transfer
of any asset cannot be effected without the consent of a governmental
authority, no such distribution or transfer shall be effected without such
consent. The purpose of a liquidating trust would be to distribute such
property or to sell such property on terms satisfactory to the liquidating
trustees, and distribute the proceeds of such sale after paying those
liabilities of the Company, if any, assumed by the trust, to the Company's
stockholders. Any liquidating trust acquiring all the unsold assets of the
Company will assume all of the liabilities and obligations of the Company and
will be obligated to pay any expenses and liabilities of the Company which
remain unsatisfied. If the Contingency Reserve transferred to the liquidating
trust is exhausted, such expenses and liabilities will be satisfied out of the
liquidating trust's other unsold assets.
The Plan of Liquidation and Dissolution authorizes the Board of Directors to
appoint one or more individuals or entities to act as trustee or trustees of
the liquidating trust or trusts and to cause the Company to enter into a
liquidating trust agreement or agreements with such trustee or trustees on
such terms and conditions as may be approved by the Board of Directors. It is
anticipated that the Board of Directors will select such trustee or trustees
on the basis of the experience of such individual or entity in administering
and disposing of assets and discharging liabilities of the kind to be held by
the liquidating trust or trusts and the ability of such individual or entity
to serve the best interests of the Company's creditors and stockholders. The
Company has not determined whether it would require that a majority of the
trustees be independent of the Company's management. Approval of the Plan of
Liquidation and Dissolution by the stockholders will also constitute the
approval by the Company's stockholders of any such appointment and any
liquidating trust agreement or agreements.
The Company has no present plans to use a liquidating trust or trusts, but
the Board of Directors believes the flexibility provided by the Plan of
Liquidation and Dissolution with respect to the liquidating trusts to be
advisable. Any trust would be evidenced by a trust agreement between the
Company and the trustees. The purpose of the trust would be to serve as a
temporary repository for the trust property prior to its disposition or
distribution first to the Company's creditors in order of priority and to pay
the expenses associated with the liquidation and dissolution, then to the
holder of the Preferred Stock to the extent of the $60.0 million, plus accrued
and unpaid dividends, aggregate liquidation preference of the Preferred Stock
and finally to holders of the Common Stock, on a pro rata basis. It is highly
unlikely that preferred or common stockholders will receive any distributions.
The transfer to the trust and distribution of interests therein to the
Company's stockholders would enable the Company to divest itself of the trust
property. Pursuant to the trust agreement, the trust property would be
transferred to the trustees immediately prior to the distribution of interests
in the trust to the Company's stockholders, to be held in trust for the
benefit of the stockholder beneficiaries subject to the terms of the trust
agreement and claims of creditors. It is anticipated that the interests would
be evidenced only by the records of the trust and there would be no
certificates or other tangible evidence of such interests and that no holder
of Preferred Stock or Common Stock would be required to pay any cash or other
consideration for the interests to be received in the distribution or to
surrender or exchange shares of Preferred Stock or Common Stock in order to
receive the interests. It is further anticipated, although not required, that
pursuant to the trust agreements (i) approval of a majority of the trustees
would be required to take any action; and (ii) the trust would be irrevocable
and would terminate after the earlier of (x) the trust property having been
fully distributed, or (y) a majority of the trustees having approved of such
termination, or (z) a specified number of years having elapsed after the
creation of the trust.
The Company does not believe it will have any funds or assets available to
make distributions to its preferred or common stockholders. Accordingly, the
Company believes that it is highly unlikely that it will make any
distributions to a liquidating trust.
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Abandonment and Amendment
Under the Plan of Liquidation and Dissolution, the Board of Directors may
modify, amend or abandon the Plan of Liquidation and Dissolution,
notwithstanding stockholder approval, to the extent permitted by the DGCL. The
Company will not amend or modify the Plan of Liquidation and Dissolution under
circumstances that would require additional stockholder solicitations under
the DGCL or the federal securities laws without complying with the DGCL and
the federal securities laws.
Ongoing Liabilities; Timing
Claims, liabilities and expenses from operations (including operating costs,
salaries, income taxes, payroll and local taxes and miscellaneous office
expenses) will continue to occur following approval of the Plan of Liquidation
and Dissolution, and the Company anticipates that expenses for professional
fees and other expenses of liquidation will be significant. These expenses
will reduce the amount of assets, if any, available for ultimate distribution
to stockholders. The Company believes that it is highly unlikely that there
will be any funds or assets available for distribution to preferred or common
stockholders. The liquidation is expected to be commenced after effectiveness
of the Certificate of Dissolution and to be concluded prior to the third
anniversary thereof by a final liquidating distribution either directly to the
Company's creditors or to a liquidating trust.
Listing and Trading of the Common Stock and Interests in Any Liquidating Trust
or Trusts
The Company currently intends to close its stock transfer books on the
Dissolution Date and at such time cease recording stock transfers and issuing
stock certificates (other than replacement certificates). Accordingly, it is
expected that trading in the Company's shares will cease on and after such
date.
On January 27, 1999, the Company's Common Stock was delisted from the Nasdaq
National Market System. Since that time, the Common Stock has been listed on
the over-the-counter bulletin board market maintained by Nasdaq. It is
expected that the Company's Common Stock will be deregistered under Rule 12g-4
of the Securities Exchange Act of 1934 in connection with the Company's
anticipated formal winding up and dissolution. On May 19, 1999, the last
trading day preceding the public announcement of the Plan of Liquidation and
Dissolution, the range of bid and asked prices per share of the Common Stock
were $0.02 and $0.03, respectively.
The interests in any liquidating trust or trusts for the benefit of
stockholders are not expected to be transferable.
Regulatory Approvals
No United States federal or state regulatory requirements must be complied
with or approvals obtained in connection with the liquidation. The Company may
have to make certain foreign filings in connection with the closing of the
Company's facilities located outside of the United States.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a general summary of the material Federal income
tax consequences of the Plan of Liquidation and Dissolution to the Company and
the Company's stockholders (other than Lockheed Martin), respectively, but
does not purport to be a complete analysis of all the potential tax effects.
The discussion addresses neither the tax consequences that may be relevant to
particular categories of investors subject to special treatment under certain
Federal income tax laws (such as dealers in securities, banks, insurance
companies, tax-exempt organizations, and foreign individuals and entities) nor
any tax consequences arising under the laws of any state, local or foreign
jurisdiction. The discussion is based upon the Internal Revenue Code of 1986,
as amended (the "Code"), Treasury Regulations, IRS rulings, and judicial
decisions now in effect, all of which are subject to change at any time; any
such changes may be applied retroactively. The following discussion has no
binding effect on the IRS or the courts and assumes that the Company will
liquidate substantially in accordance with the Plan of Liquidation and
Dissolution.
Distributions pursuant to the Plan of Liquidation and Dissolution, if any,
may occur at various times and in more than one tax year. No assurance can be
given that the tax treatment described herein will remain unchanged at the
time of such distributions. The following discussion presents the opinion of
the Company. No ruling has been requested from the IRS with respect to the
anticipated tax treatment of the Plan of Liquidation and Dissolution and the
Company will not seek an opinion of counsel with respect to the anticipated
tax treatment. The failure to obtain a ruling from the IRS or an opinion of
counsel results in less certainty that the anticipated tax treatment
summarized herein will be obtained. If any of the conclusions stated herein
proves to be incorrect, the result could be increased taxation at the
corporate and/or stockholder level, thus reducing the benefit, if any, to the
stockholders and the Company from the liquidation.
Based on the anticipated value of the Company's assets and the amounts owed
to creditors of the Company, the Company does not believe it will have any
funds or assets remaining to make distributions to either preferred or common
stockholders. Therefore, it is highly unlikely that any distributions will be
made to stockholders.
Consequences to the Company
After the approval of the Plan of Liquidation and Dissolution and until the
liquidation is completed, the Company will continue to be subject to income
tax on its taxable income. The Company will recognize gain or loss on sales of
its property pursuant to the Plan of Liquidation and Dissolution. Upon
distributions, if any, of property to stockholders pursuant to the Plan of
Liquidation and Dissolution, the Company will recognize gain or loss as if
such property was sold to the stockholders at its fair market value, unless
certain exceptions to the recognition of loss apply. As it is anticipated that
no such exception will apply, the Company should recognize gain or loss on any
distribution of property to stockholders pursuant to the Plan of Liquidation
and Dissolution. It is possible, although unlikely, that the sale or
distribution of all of the Company's holdings may result in the realization of
net gain and the generation of tax obligations exceeding the amount of cash
currently available. In addition, liabilities of the Company may be discharged
by the Company at less than the face amount of such liabilities. The discharge
of liabilities by the Company at less than face amount will result in a
realization of income to the Company to the extent of the excess of the face
amount of the liabilities over the amount paid in satisfaction thereof.
However, it is unlikely that there will be any material tax or tax sharing
payments payable at the corporate level because of net operating losses
previously incurred and expected to be incurred by the Company.
Consequences to Stockholders other than Lockheed Martin
As a result of the liquidation of the Company, stockholders will recognize
gain or loss equal to the difference between (i) the sum of the amount of cash
distributed to them and the fair market value (at the time of distribution) of
property distributed to them, and (ii) their tax basis for their shares of
stock. The Company believes that it is highly unlikely that any distributions
of cash or property will be made to stockholders.
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A stockholder's tax basis in his or her shares will depend upon various
factors, including the stockholder's cost and the amount and nature of any
distributions received with respect thereto.
A stockholder's gain or loss will be computed on a "per share" basis. If a
stockholder receives no distributions pursuant to the Plan of Liquidation and
Dissolution, such stockholder should be entitled to claim a worthless stock
deduction equal to the tax basis of the shares held by such stockholder, in
the taxable year in which the liquidation is completed (or in a prior year if
it became clear in such year that the stock was worthless). Such deduction
should be treated as a capital loss, as if the stock were sold on the last day
of the taxable year of the deduction. If the stockholder's holding period for
the stock is more than 12 months on such date, the capital loss will be long-
term; otherwise, it will be short-term.
In the unlikely event that the Company makes any liquidating distributions,
each would be allocated proportionately to each share of Common Stock owned by
a stockholder. The value of each liquidating distribution would be applied
against and reduce a stockholder's tax basis in his or her shares of stock.
Gain would be recognized by reason of a liquidating distribution only to the
extent that the aggregate value of such distributions received by a
stockholder with respect to a share exceeds his or her tax basis for that
share. Subject to the preceding paragraph, any loss will generally be
recognized only when the final distribution from the Company has been received
and then only if the aggregate value of the liquidating distributions with
respect to a share is less than the stockholder's tax basis for that share.
Gain or loss recognized by a stockholder will be capital gain or loss provided
the shares are held as capital assets. Gain resulting from distributions of
cash or assets from a corporation pursuant to a plan of liquidation is
therefore generally capital gain rather than ordinary income; ordinary income
would be the result in the event of the receipt of a distribution, not in
liquidation, that is characterized as a dividend for tax purposes, subject, in
the case of corporate holders, to a dividends-received deduction. If it were
to be determined that any distributions made pursuant to the Plan of
Liquidation and Dissolution were not liquidating distributions, the result
could be treatment of distributions as dividends taxable at ordinary income
rates.
Upon any distribution of property, the stockholder's tax basis in such
property immediately after the distribution will be the fair market value of
such property at the time of distribution. The gain or loss realized upon the
stockholder's future sale of that property will be measured by the difference
between the stockholder's tax basis in the property at the time of such sale
and the sales proceeds.
After the close of its taxable year, the Company will provide stockholders
and the IRS with a statement of the amount of cash, if any, distributed to the
stockholders and its best estimate as to the value of the property, if any,
distributed to them during that year. In the case of property which consists
of stock or other securities which are traded in a public market, the fair
market value will be determined by the Company based on the prices at which
such stock or securities are so traded. In the case of other property, the
fair market value will be determined by the Company based upon reports by
independent appraisers or such other evidence as the Company shall elect.
There is no assurance that the IRS will not challenge such valuation. As a
result of such a challenge, the amount of gain or loss recognized by
stockholders might be changed. Distributions to stockholders could result in
tax liability to any given stockholder exceeding the amount of cash received,
requiring the stockholder to meet the tax obligations from other sources or by
setting all or a portion of the assets received. Such sales, or the prospect
of such sales, could reduce the market price of the securities received.
Taxation of Non-United States Stockholders
Foreign corporations or persons who are not citizens or residents of the
United States should consult their tax advisors with respect to the U.S. and
non-U.S. tax consequences of the Plan of Liquidation and Dissolution.
Stockholders may also be subject to state or local taxes, and should consult
their tax advisors with respect to the state and local tax consequences of the
Plan of Liquidation and Dissolution.
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The foregoing summary of Certain Federal Income Tax Consequences is included
for general information only and does not constitute legal advice to any
stockholder. The tax consequences of the Plan of Liquidation and Dissolution
may vary depending upon the particular circumstances of the stockholder. The
Company recommends that each stockholder consult his or her own tax advisor
regarding the tax consequences of the Plan of Liquidation and Dissolution.
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BUSINESS
Recent Developments
The description of the Company's business contained below is qualified in
its entirety by the information contained above under "Special Factors--
General Background."
General
The Company, formerly Summagraphics Corporation ("Summagraphics"), was
incorporated under Delaware law in 1972. The mailing address of the Company's
principal executive office is 2411 W. La Palma Avenue, Anaheim, California
92801. The Company's telephone number is (714) 821-2000. Except where the
context indicates otherwise, references to an entity include its consolidated
subsidiaries.
Historic Business
CalComp Inc. The principal business of the Company derived from that of
CalComp Inc., formerly California Computer Products, Inc. ("CCP"), which was
incorporated in September 1958 to manufacture and market computer graphics
products for the U.S. Government's NIMBUS Weather Satellite Program. In 1959,
CCP introduced the world's first drum plotter, which translated computer
output into visual data such as drawings, charts and graphics. CCP expanded
its product offerings by introducing new plotters and controllers through the
1960's and 1970's. CCP added its first electrostatic plotter to its product
line in 1979. During the 1980's and 1990's, CCP and subsequently CalComp Inc.,
continued to expand its product line through adapting various technologies to
new products, including thermal transfer technology in printers, laser
technology in printers/plotters, LED technology in plotters, bubble inkjet
technology in plotters, and direct thermal technology in printers and
plotters. CCP added the digitizer product line in 1980 through the acquisition
of Talos Systems, Inc.
In 1980, CCP was acquired by Sanders Associates, Inc., a defense electronics
company in Nashua, New Hampshire. At the end of 1983, CCP was merged with and
into Sanders Associates, Inc. and the business was conducted thereafter under
the name of CalComp Group. In 1986, Sanders Associates, Inc. was acquired by
Lockheed Corporation ("Lockheed") at which time CalComp Group became an
operating unit of Lockheed's Information Systems Group. CalComp Inc. was
incorporated in 1987 under California law to acquire the assets and
liabilities of CalComp Group from Sanders Associates, Inc., and to operate as
a separate legal entity and a wholly-owned indirect subsidiary of Lockheed. In
March 1995, the businesses of Lockheed and Martin Marietta Corporation were
combined to form Lockheed Martin Corporation, at which time CalComp Inc.
became a subsidiary of Lockheed Martin in the Information and Technology
Services Sector.
Commencing in 1991 and continuing into 1996, CalComp Inc. experienced
substantial net operating losses principally due to the negative impact on
margins resulting from the migration of the hard copy output device industry
to inkjet technology products and the late entry of CalComp Inc. into the
inkjet market in fiscal 1994. In late 1995, Lockheed Martin Corporation and
Summagraphics Corporation began discussions concerning a proposed combination
of CalComp Inc. and Summagraphics Corporation that resulted in the combination
of the companies on July 23, 1996. See "The Exchange."
Summagraphics Corporation. Summagraphics Corporation manufactured and sold
input and output computer graphics peripheral products, many of which competed
with CalComp Inc. In 1996, Summagraphics encountered significant financial
difficulties primarily due to problems with its output products. Due to
continuing losses and pressure from its lenders and vendors, Summagraphics
pursued various activities to raise additional capital including the sale of
part or all of the Company.
The Exchange. The Company, then Summagraphics Corporation, entered into a
Plan of Reorganization and Agreement for the Exchange of Stock of CalComp Inc.
for stock of the Company (dated as of March 19, 1996
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and subsequently as amended April 30, 1996 and June 5, 1996) pursuant to which
the Company issued to Lockheed Martin Corporation 40,742,957 shares of the
Common Stock of the Company, representing 89.7% of the total outstanding
shares of Common Stock of the Company following such issuance, in exchange for
all of the outstanding capital stock of CalComp Inc. (the "Exchange"). The
closing of the Exchange occurred on July 23, 1996 following approval of the
Exchange by the stockholders of the Company. As a result of the Exchange,
Lockheed Martin acquired control of the Company and CalComp Inc. became a
wholly-owned subsidiary of the Company. In connection with the Exchange, the
Company also changed its name from Summagraphics Corporation to CalComp
Technology, Inc. and changed its year end from May 31 to a fifty-two, fifty-
three week fiscal year ending on the last Sunday of December.
The Exchange was accounted for as a "reverse acquisition," whereby CalComp
Inc. was deemed to have acquired the Company, for financial reporting
purposes. However, the Company remains the continuing legal entity and
registrant for Securities and Exchange Commission ("SEC") filing purposes.
Immediately following the Exchange, each of the then directors and executive
officers of the Company resigned and Lockheed Martin, as the owner of a
majority of outstanding shares of the Common Stock of the Company, adopted a
resolution by written consent increasing the size of the Board of Directors
from six to seven members and elected seven new directors. The Board then
appointed officers to fill the vacant offices.
For so long as Lockheed Martin continues to beneficially own more than 50%
of the outstanding voting stock of the Company, Lockheed Martin will be able
to control the Board of Directors and approve any other matter submitted to a
vote of the stockholders without the consent of the other stockholders of the
Company. In addition, in connection with the Exchange, the Company entered
into agreements providing for, among other things, a long term line of credit
and cash advances for long term financing and operating requirements,
administrative support in selected areas and the filing of a consolidated tax
return.
CalComp Technology, Inc. Subsequent to the Exchange, the Company moved its
executive offices from Austin, Texas to Anaheim, California and substantially
completed its business plan to reduce duplicative work force and corporate
overhead between the companies, integrate manufacturing operations and
eliminate certain unprofitable product lines. The Company also substantially
completed efforts to rationalize CalComp Inc.'s and Summagraphics' respective
sales, product support, distribution and marketing organizations, and to
integrate each company's product offerings and development activities.
In November 1996, the Company acquired Topaz, a privately held company
located in Sunnyvale, California, in exchange for 1,500,000 shares of the
Company's Common Stock and $750,000 in cash. Subsequent to the acquisition,
Topaz became a wholly-owned subsidiary of CalComp Technology, Inc. Topaz was a
developer and manufacturer of the proprietary piezo inkjet printing technology
which the Company marketed under the CrystalJet name. Pursuant to the Plan for
Orderly Shutdown, Topaz ceased operations effective January 29, 1999.
Kodak Joint Development Agreement. On March 29, 1998, the Company and
Eastman Kodak Co. ("Kodak") entered into a Patent License and Joint
Development Agreement (the "Joint Development Agreement") covering the joint
development of the Company's CrystalJet technology into a range of products,
printers and consumables for commercial applications. The Joint Development
Agreement has a term of five years and provides for the contribution by Kodak
of up to $36 million, with $20 million having been advanced upon the signing
of the Joint Development Agreement and up to an additional $16 million to be
funded incrementally over the term upon the achievement of certain milestones
and the occurrence of certain events. As of December 1998, the initial $2
million milestone under the Joint Development Agreement had been achieved and
paid by Kodak. A second $2 million milestone had been achieved and was
recorded as revenue but remains unpaid by Kodak who is withholding payment
pending resolution of its dispute with the Company relating to the Joint
Development Agreement. See "Kodak Litigation." The Company and Kodak are also
in dispute concerning the appropriate criteria applicable to an additional $3
million payment concerning a third milestone, notice of achievement of which
the Company has also delivered to Kodak. See "Kodak Litigation." The
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Joint Development Agreement also provides for royalties to be paid by Kodak to
the Company in respect of licenses granted thereunder which allow Kodak, under
certain circumstances, to exploit the inkjet technology developed under the
terms of the agreement.
Pursuant to the Joint Development Agreement, the Company issued to Kodak a
warrant (the "Warrant") to purchase 8,000,000 shares (the "Warrant Shares") of
the Company's Common Stock at an exercise price of $3.88 per share. The
Warrant has a term of seven years and became exercisable as to 4,000,000 of
the Warrant Shares on March 29, 1999, and the remaining 4,000,000 Warrant
Shares will become exercisable on March 29, 2000 (each a "Vesting Date");
provided, however, that in the event the Joint Development Agreement is
terminated prior to a Vesting Date, the Warrant will terminate as to any
unvested Warrant Shares.
Kodak Litigation. On May 13, 1999, Kodak filed suit against the Company and
Lockheed Martin (collectively, the "Defendants") in the Orange County Superior
Court of the State of California claiming (i) compensatory damages as a result
of the Defendants' alleged breaches of the Joint Development Agreement and the
covenant of good faith and dealing, and the Defendants' alleged negligent
misrepresentation; (ii) compensatory and exemplary damages as a result of the
Defendants' alleged fraud in inducing Kodak to believe that Lockheed Martin
would support the Company and that the Company would remain a viable entity
throughout the term of the Joint Development Agreement; and (iii) compensatory
and exemplary damages as a result of Lockheed Martin's alleged intentional
interference with the contract between the Company and Kodak. In each cause of
action, Kodak is seeking compensatory damages in excess of $22 million. In
addition, Kodak requests that (A) it be awarded a constructive trust over the
$22 million in funds it contributed to the project and any property acquired
therefrom; (B) the Defendants be required to provide an accounting of all
funds provided to and expended by the Defendants with respect to the project;
and (C) the court adjudge and declare the respective rights and duties of the
parties under the Joint Development Agreement. The Company intends to defend
itself vigorously, and to assert any counterclaims against Kodak available to
the Company, including without limitation counterclaims relating to Kodak's
failure to make milestone payments under the Joint Development Agreement.
Products
Through 1998, the Company continued to distribute graphics peripheral
products targeted at CAD/CAM printing and publishing and graphic arts markets.
The Company's products fell into two general product lines: (1) hard copy
output products, consisting primarily of printers and plotters, and graphics
cutters; and (2) input devices, consisting of digitizers and scanners. In
connection with the Plan for Orderly Shutdown, all manufacturing and marketing
of the Company's products have been discontinued.
Hard-Copy Output Devices
The Company historically has produced and sold a wide variety of hard-copy
output devices of which the two principal classes of products were printers
(including plotters) and vinyl-cutting plotters ("cutters"). Printers are
devices that place raster images (oriented dots) on various types of output
media (either paper or film) producing text, pictures and/or graphic images.
Plotters are devices that translate computer output data into hard-copy media,
such as schematics, charts, maps, and computer-aided design ("CAD") drawings,
pictures, and other images. The basic unit consists of a microprocessor, a
controller, and a marking mechanism. These output devices are often
interchangeable, with the difference between plotters and printers often being
the firmware-based connectivity solutions. A cutter performs a function
similar to a plotter, but rather than drawing an image onto a sheet of paper,
it accurately cuts on various media (such as vinyl) along a programmed image
employing the same technique as a plotter, except using a knife instead of a
pen.
Printers and Plotters
CrystalJet. CrystalJet printers represented 2% of the total revenue of the
Company for fiscal year 1998. Over 14% of the Company's total revenue for
fiscal 1998 derived from Kodak's payments under the Joint Development
Agreement relating to the CrystalJet technology and from the sale of
CrystalJet printers. The
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CrystalJet wide-format printers contain four print heads, one for each of the
four process colors. The print heads can be adjusted to two different heights
above the media: 1.0 mm or 2.5 mm, which allows for a range of media options.
Each print head, which contains 256 nozzles, is spaced at 1/180th-inch
intervals yielding a print swath of 1.4 inches per color. This unique feature
gives the user the ability to control the resolution and print speed. Users
can select, on a job-by-job basis, 180, 360, or 720 dots per inch ("dpi"); 2,
4 or 8 interleaved passes; bi-directional or unidirectional printing; and
pixel drop size. The CrystalJet printers can print a 360 dpi resolution image
at 120 square feet per hour and a 720 dpi resolution image at 70 square feet
per hour. These printing speeds are believed to be three to four times faster
than traditional thermal inkjet printers. In addition, the technology supports
different droplet sizes providing users the capability of printing high
quality images at various resolutions for numerous market applications not
currently available with competing thermal or piezo technology. Although the
CrystalJet products were brought to market in 1998, the substantial operating
losses and negative cash flow resulting from unexpected delays and technical
difficulties related to the CrystalJet manufacturing process as well as the
unanticipated costs and difficulties in gaining wide market acceptance, would
have required a significant infusion of capital to allow the Company to
achieve profitable large scale production of these products. Failure to obtain
sufficient funding led to the adoption of the Plan for Orderly Shutdown. In
connection with the Plan for Orderly Shutdown, operations relating to the
CrystalJet products were terminated. Currently, the Company is considering
various alternatives concerning the CrystalJet assets, including sale of such
assets, in whole or in part, to third party purchasers (including Kodak and
the former Topaz owners) or a transfer or other conveyance of such assets in
satisfaction of creditor claims.
Historical Output Products. Printers and plotters represented 14% of the
total revenue of the Company for fiscal year 1998. In connection with the
Company's plan to transition substantially all of its output products to its
new CrystalJet technology, the Company liquidated substantially all of its
non-CrystalJet based thermal inkjet output products at significantly less than
their historical values in 1998.
Cutters
The Company's cutter business represented 7% of the total revenue in 1998.
Cutters are output devices, similar in construction to a pen plotter, but
employ a knife in place of a pen to cut vinyl for signs and banners, art film
for screen printing, and various stencil materials for etching text and images
into glass, wood and stone via an abrasive etching process. Cutter performance
is primarily measured by speed, acceleration, and guaranteed accuracy.
Additional features include knife type, tool pressure and software
compatibility. Speed is measured by how many inches the knife moves per
second. Acceleration is measured by how quickly the knife reaches its top
speed and, therefore, is important since most signs consist of short lines.
Guaranteed accuracy depends on the drive mechanism, either friction or
sprocket, in the cutter. There are currently two types of knife systems used
to cut material: drag and tangential. Drag knife units typically cost less,
have less knife pressure capability, and are used for general sign
applications. Tangential knife units are typically more expensive, with more
knife pressure, greater precision cutting abilities and the ability to cut a
wider variety of material.
On February 19, 1999, the Company sold its cutter business to WestComp
Incorporated ("WestComp") for $600,000 in cash and the assumption by WestComp
of certain liabilities relating to the business. The asset sale to WestComp
principally included the shares of CalComp Display Products N.V., a Belgian
company and an indirect subsidiary of the Company, and the cutter related
products held as inventory by the other subsidiaries of the Company. In
connection with the sale, CalComp Technology Europe N.V. sold the principal
facility of the cutter business, located in Gistel, Belgium, to an affiliate
of WestComp at a purchase price of $924,000 on March 31, 1999.
Input Devices
Input devices accounted for 22% of the total revenue of the Company for
fiscal year 1998. The input device products offered by the Company were
digitizers and scanners.
Digitizers
Uses for digitizers include desktop publishing, image processing, simple
mouse replacement and pen-based computing. The Company's primary markets for
digitizers were in computer-aided design, engineering and manufacturing
(CAD/CAE/CAM).
26
<PAGE>
Digitizers typically are used with personal computers and workstations and
support a broad range of software applications which include high-end computer
aided publishing, construction management and costing, graphics design and
animation, mapping and geographic information systems (GIS) and
geological/seismic analysis. They also are used frequently with software
systems such as AutoCAD. Newspaper publishers, for example, use the Company's
digitizers as part of their complete computer-aided publishing systems for
publication layout. Animation and graphics design uses for digitizers vary
widely and include use in cinema productions, colorization of black and white
movies and television weather and sports analysis. The cost of digitizers has
come down significantly over the past few years, making them a viable mouse
replacement.
Traditionally, customers using CAD applications, mapping applications and
GIS applications have perceived the need for the high precision input offered
by digitizers. Recent software releases in the CAD industry, whereby mouse
input devices are interchangeable with digitizer tablets for CAD applications,
have significantly reduced the customer need for digitizer products. The
Company believes that this trend and the failure of the Company to
successfully replace or renew demand for CAD digitizer products had a material
and adverse impact on the Company's input device business.
Scanners
Scanners are input devices which detect images on input media and translate
the images into raster data for a computer. The Company marketed a family of
large format scanners, the ScanPlusTM III large format scanners that are
capable of fast, high volume scanning. These units, which can scan documents
up to 36" wide, come in resolutions from 300 to 1000 dpi. The large format
monochrome/color scanner addresses the needs of users who have to transfer
hard copy drawings into a digital form. Applications for large format scanning
include architectural engineering and construction (AEC), document management,
mapping/GIS, and facilities management. Traditionally, converting to a digital
form has been accomplished by either totally recreating the original drawing,
utilizing a computer aided drafting package within the computer, or digitizing
the original drawing using a large format digitizer.
Sale of the Input Device Business
Although the Company, as part of its strategy to divest itself of its non-
CrystalJet business and to generate cash to be used to fund continuing
operations, attempted to sell its input device business during fiscal 1998,
such efforts proved unsuccessful. On February 1, 1999, in connection with the
Plan for Orderly Shutdown, the Company, through certain domestic and foreign
subsidiaries, sold substantially all of the assets relating to its input
device business to GTCO Corporation ("GTCO"), one of the Company's competitors
who had previously negotiated for the purchase of the business, for an
aggregate of $6,500,000 in cash and the assumption by GTCO of certain
liabilities relating to the input device business.
Supplies
The Company also marketed an extensive line of consumable inks and media for
its printers and plotters. Supplies represented 23% of the revenues of the
Company for fiscal year 1998.
The Company's strategy for its new line of CrystalJet products was to
establish a CrystalJet based-consumables business. In connection with the
release and establishment of an installed base of the new CrystalJet products,
the Company intended to introduce a full line of related ink and media
supplies. The Company planned to market inks, under the name "CrystalInk",
which was to contain a complete set of both indoor dye-based ink and outdoor
pigment-based ink. In addition, the Company intended to offer a full line of
media products including opaque matte bond, premium bond, graphics
presentation, glossy, adhesive-backed vinyl, canvas, and overlaminate
material. This matched ink and media system was anticipated to provide
customers with one source for their printing needs.
The Company believed that the CrystalJet consumables business would replace
and, as the installed base grew, exceed the Company's existing non-CrystalJet
consumables business. However, the difficulties associated with the
introduction of the CrystalJet product line and the liquidity crisis leading
to the Plan for Orderly Shutdown did not allow for the successful development
of the CrystalJet consumables business.
27
<PAGE>
In connection with the Plan for Orderly Shutdown, on March 24, 1999, the
Company sold its non-CrystalJet consumables business (excluding the
territories of Europe and Africa) to Budde International, Inc ("BII"). The
purchase price for the non-CrystalJet supplies inventory and related sales
information was $833,000. Effective April 30, 1999, the Company also sold the
European and Africa supplies business to CalComp European Supplies Limited, a
subsidiary of RES Holdings Limited, for a purchase price of $1,089,000.
Service and Support
The Company, through its North American Channels group, its international
subsidiaries and selected third-party providers, provided an extensive range
of customer service and technical support for the Company's products. Service
revenues accounted for 20% of the Company's total revenue in 1998. Technical
support and customer service were provided through a twelve hour, five day
telephone response network that provided customers with continuous access to
trained technical support personnel. In addition, the Company provided product
support and service through repair, exchange or replacement of products. The
Company also maintained a staff of service technicians that were available for
on-site service calls. During the past three years, the Company entered into
certain agreements under which third parties provided service and technical
support for the Company's traditional printer/plotter products. However, in
view of the increased complexity of the Company's inkjet printer products,
together with the need for increased emphasis on providing better response
times to calls for service, the Company moved away from using third parties in
favor of its in-house service staff where feasible.
As part of the Plan for Orderly Shutdown, the Company is maintaining scaled
back service and support programs for historical product groups pending the
sale of assets and assumption of obligations (including warranty obligations)
relating to the various products or other out-sourcing of related support and
service obligations. On April 1, 1999, the Company sold its assets and
liabilities relating to its worldwide parts distribution business and its
North American service business to CalGraph Technology Services, Inc., a
wholly-owned subsidiary of Tekgraf, Inc., for a purchase price of $400,000.
Research and Development
During fiscal year 1998, the Company expended $14.5 million for research and
development activities. The Company's research and development efforts were
primarily focused on the output device market and inkjet technology and
related platforms. Royalty revenue, primarily $18.6 million from the Company's
Joint Development Agreement with Kodak, contributed 12% of the Company's total
revenue in 1998. Pursuant to the Plan for Orderly Shutdown, the Company has
suspended further research and development efforts.
Patents and Proprietary Information
The Company owns numerous patents and patent applications, including
domestic and foreign applications covering the CrystalJet technology, which
were used in the operation of the Company's business and has developed a
variety of proprietary information that was necessary for its business. While
such patents, patent applications and other proprietary information were, in
the aggregate, important to the operation of the Company's business,
management of the Company does not believe that loss or termination of any
patent, patent application or other intellectual property right would have
materially affected the business of the Company. In conjunction with the Plan
for Orderly Shutdown, certain of the Company's patents and patent applications
are being transferred to third parties as the related businesses are sold.
Sales and Distribution
In 1998, the Company modified its distribution strategy for output products
to sell its branded products through value-added resellers in an effort to
achieve an overall higher level of customer satisfaction and to
28
<PAGE>
penetrate new markets and better service customer needs. Delays and technical
difficulties in bringing the CrystalJet products to market and the Company's
liquidity crisis leading to the Plan for Orderly Shutdown did not allow these
sales and distribution goals to be realized.
Competition
The Company encountered extensive competition in all of its lines of
business with numerous other parties, depending on the particular product or
market environment. The parties with whom the Company competed differed
depending on whether the product at issue was in the hard-copy plotter,
printer and cutter market, or the digital input device market. Many of the
Company's competitors had larger technical staffs, larger marketing and sales
organizations and significantly greater financial resources than the Company.
The Company also faced additional competition from many smaller competitors.
Organization
Prior to the Plan for Orderly Shutdown, the Company's business, although
conducted through numerous domestic and foreign subsidiaries, consisted of two
organizational units, the Input Technologies Division located in Scottsdale,
Arizona which manufactured and/or distributed digitizers and scanners and the
Digital Printing Systems Division located in Anaheim and Sunnyvale, California
and Gistel, Belgium which manufactured and sold output products consisting of
printers and cutters. Sales and service were organized geographically for both
divisions, while the following functions were included within each division:
Product Management was responsible for defining product requirements and for
the product through development, manufacturing and sales, to provide
continuity to the Company's market commitment.
Product Development was charged with the design of an economically
manufacturable product which met the specifications originated by Product
Management.
Manufacturing performed all of the manufacturing operations, including the
purchasing of materials, manufacturing, testing, packaging and shipping of
products. Manufacturing consisted of a blend of internal and outsourced
capabilities.
Marketing and Sales were responsible for the selection, management and
support of distribution channels. Additionally, the North American Sales
organization managed sales in territories where the Company had no operating
subsidiaries or distributors through Budde International, Inc., a Master
Distributor located in Anaheim, California.
The Company's European operations were headquartered in Brugge, Belgium. The
Company's activities in the Asia/Pacific region were conducted through
subsidiaries in Hong Kong, China and Australia. The Company is a party to a
joint venture in Japan in which it has a 44% equity interest; Nippon Steel
Corporation owns 51% and Sumitomo Corporation owns 5%. The joint venture, NS
CalComp Corp., was the exclusive distributor for nearly all of the Company's
products in Japan. In connection with the Plan for Orderly Shutdown, all
foreign operations are being wound up and terminated. The Company is currently
negotiating a sale of its interest in the Japanese joint venture.
Employees
As of December 27, 1998, the Company employed approximately 888 people
worldwide, of which 130 employees were involved in product development,
manufacturing, marketing and headquarters operations in Anaheim, California.
Approximately 133 employees were employed in the sales and service of the
Company's products and were located at various strategic sites throughout
North America, with many located in Anaheim, California. The Company employed
approximately 126 people in support of its input device operations in
Scottsdale, Arizona, and 270 people in support of inkjet products in
Sunnyvale, California. In addition, there
29
<PAGE>
were approximately 206 employees in Europe and 23 employees in Asian
operations, primarily involved with the importation, sales and service of the
Company's products into their local geographic regions. Under the Plan for
Orderly Shutdown, the Company had reduced its work force to approximately 70
employees at May 1, 1999.
Certain Company employees have been designated as members of the Company's
shutdown team, and the Plan for Orderly Shutdown contemplates that
approximately 55 of those employees will continue to work through July 1999.
Each team member will receive a retention benefit related to his or her
efforts in facilitating the Plan for Orderly Shutdown. Severance amounts paid
to the Company employees have been based on existing contracts, statutory
requirements and Company policy. Severance payments in certain foreign
jurisdictions, particularly Europe, tend to be significantly higher than in
the United States due to local statutory requirements.
30
<PAGE>
MARKET FOR COMPANY'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
Until January 27, 1999, the Company's Common Stock was listed and traded on
the NASDAQ National Market System under the symbol "CLCP." The following table
sets forth the high and low closing sales prices of the Common Stock for the
periods as reported by the NASDAQ (or, in the case of the portion of the first
quarter of the year ending December 26, 1999, beginning on and after January
28, 1999, the high and low bid prices on the over-the-counter bulletin board
maintained by the NASDAQ).
<TABLE>
<CAPTION>
High Low
----- -----
<S> <C> <C>
Year Ending December 26, 1999:
First Quarter on and after January 28, 1999..................... $0.03 $0.02
First Quarter prior to January 28, 1999......................... 1.09 0.22
Year Ended December 27, 1998:
Fourth Quarter.................................................. 2.13 0.88
Third Quarter................................................... 2.94 1.25
Second Quarter.................................................. 4.00 2.50
First Quarter................................................... 4.63 2.81
Year Ended December 28, 1997:
Fourth Quarter.................................................. 6.06 3.50
Third Quarter................................................... 5.50 1.88
Second Quarter.................................................. 2.88 1.38
First Quarter................................................... 2.75 2.19
</TABLE>
On January 27, 1999, the Company's Common Stock was delisted from the Nasdaq
National Market System. Since that time, the Common Stock has been listed on
the over-the-counter bulletin board market maintained by Nasdaq. It is
expected that the Company's Common Stock will be deregistered under Rule 12g-4
of the Securities Exchange Act of 1934 in connection with the Company's
anticipated formal winding up and dissolution.
As of April 30, 1999, there were 294 holders of record of the Company's
Common Stock. The closing bid price of the Company's Common Stock was $0.02 as
of April 30, 1999 on the over-the-counter bulletin board market. On May 19,
1999, the last trading day preceding the public announcement of the Plan of
Liquidation and Dissolution, the range of bid and asked prices per share of
the Common Stock were $0.02 and $0.03, respectively.
The Company has never paid any dividends with respect to its Common Stock
and does not anticipate ever paying any dividends.
31
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected net liabilities in liquidation and statement of operations data
as of and for the fiscal year ended December 27, 1998 set forth below are
derived from the Company's audited consolidated financial statements and the
selected net liabilities in liquidation data as of March 28, 1999 set forth
below are derived from the Company's unaudited consolidated financial
statements. As discussed in "Business--Background and Summary of Significant
Developments," the Company has implemented a Plan for Orderly Shutdown;
therefore, prior year financial data is not comparable or meaningful. This
selected financial data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements of CalComp Technology, Inc. and related
notes thereto included elsewhere herein. The following data is presented in
thousands, except for share and per share data:
<TABLE>
<CAPTION>
12/27/98 3/28/99
----------- -----------
(unaudited)
<S> <C> <C>
Net Liabilities in Liquidation Data:
Total assets.................................... $ 21,939 $ 16,527
Total liabilities............................... 86,939 81,527
Net liabilities in liquidation.................. (65,000) (65,000)
Statement of Operations Data:
Revenue......................................... 153,858
Loss from operations............................ (166,201)
Net loss........................................ (168,801)
Weighted average shares used in computing per
share amount................................... 47,105,617
Basic and diluted net loss per share............ (3.58)
</TABLE>
32
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
On January 14, 1999, the Board of Directors approved a Plan for Orderly
Shutdown which is expected to be substantially completed in July 1999. On
April 29, 1999, the Board of Directors approved the Plan of Liquidation and
Dissolution. For further information See "Special Factors--Background and
Summary of Significant Developments" and "The Plan of Complete Liquidation and
Dissolution."
During the three months ended March 28, 1999, the Company's sources of cash
consisted primarily of proceeds from the Secured Demand Loan with Lockheed
Martin of $15.7 million, collections from trade accounts receivable of $14.5
million, and proceeds from the sale of its non-CrystalJet assets of $10.9
million.
The Company's use of cash during the three months ended March 28, 1999,
consisted primarily of salaries and related benefits of $14.3 million,
operating expenses during the liquidation period of $13.3 million, commitment
cancellation costs related to open purchase orders as of January 14, 1999, of
$8.9 million, and other liquidation expenses of $5.7 million.
Pursuant to the Plan for Orderly Shutdown, the Company has to date
consummated or entered into letters of intent for the sales of substantially
all of its non-CrystalJet assets. The status of the primary sales transactions
to date is as follows: On February 1, 1999, the Company, through certain
domestic and foreign subsidiaries, sold substantially all of the assets
relating to its input device business to GTCO Corporation ("GTCO") for an
aggregate of $6,500,000 in cash and the assumption by GTCO of certain
liabilities relating to the input device business. On February 19, 1999, the
Company sold its cutter business to WestComp Incorporated ("WestComp") for
$600,000 in cash and the assumption by WestComp of certain liabilities
relating to the cutter business. The asset sale to WestComp principally
included the shares of CalComp Display Products N.V., a Belgian company and an
indirect subsidiary of the Company, and the cutter related products held as
inventory by the other subsidiaries of the Company. In connection with the
sale, CalComp Technology Europe N.V. sold the principal facility of the cutter
business, located in Gistel, Belgium, to an affiliate of WestComp at a
purchase price of $924,000 on March 31, 1999. On March 24, 1999, the Company
sold its non-CrystalJet consumables business (excluding the territories of
Europe and Africa) to Budde International, Inc. for a purchase price of
$833,000 in cash. Effective April 30, 1999, the Company also sold the European
and African supplies business to CalComp European Supplies Limited, a
subsidiary of RES Holdings Limited, for a purchase price of $1,089,000 in
cash. On April 1, 1999, the Company sold the assets and liabilities relating
to its worldwide parts distribution business and its North American service
business to CalGraph Technology Services, Inc., a wholly-owned subsidiary of
Tekgraf Inc., for a purchase price of $400,000 in cash. No assurances can be
given that pending sales will be consummated or that the proceeds from such
sales, together with any proceeds from the sale of assets relating to the
Company's CrystalJet business and with the funding from Lockheed Martin under
the Secured Demand Loan, will allow the Company to successfully complete the
Plan for Orderly Shutdown and the Plan of Liquidation and Dissolution, in
which case the Company may be forced to seek protection from its creditors
under Federal Bankruptcy law or may become the subject of an involuntary
bankruptcy proceeding.
The Company believes that even if the Plan for Orderly Shutdown and the Plan
of Liquidation and Dissolution are successfully completed, it is highly
unlikely that there will be any funds or assets available for distribution to
its preferred or common stockholders and neither the Plan for Orderly Shutdown
nor the Plan of Liquidation and Dissolution contemplates any such
distributions.
Assets and Liabilities following the Adoption of the Plan for Orderly Shutdown
As a result of the Board of Directors approving the Plan for Orderly
Shutdown, the Company adopted the liquidation basis of accounting which
requires assets and liabilities to be stated at estimated fair value.
Accordingly, the consolidated statements of net liabilities in liquidation
reflect assets and liabilities based on their
33
<PAGE>
estimated fair values and estimated settlement amounts. Changes in the
estimated liquidation value of assets and liabilities are recognized in the
period in which such refinements are known. The consolidated statements of
operations, and cash flows for the fiscal year ended December 27, 1998 are
presented on the going concern basis of accounting. However, as result of the
Plan for Orderly Shutdown, comparative information is not meaningful and has
not been presented.
The Company established the carrying values for its assets and liabilities
as reflected in the consolidated statement of net liabilities in liquidation
as of December 27, 1998, using estimates of the fair values of assets and
settlement amounts of liabilities developed in March 1999 giving consideration
to all information available at that time. The Company believes there is
insufficient additional information presently available to determine whether a
change to its estimate of the deficiency in the fair value of its assets as
compared to the estimated settlement amounts for its liabilities is necessary.
Accordingly, no refinement to this estimate was made in preparing the
consolidated statement of net liabilities in liquidation as of March 28, 1999.
Results of Operations for 1998
Revenues. Revenues for the year ended December 27, 1998 were $153.9 million.
Hardware and supplies revenue represented 61% of the total revenue of the
Company for fiscal year 1998. Plotters and printers made up 23% of the
hardware and supplies revenue. This was primarily made up of sales of its
historical output products. In connection with the Company's plan to
transition substantially all of its output products to its new CrystalJet
technology in 1998, the Company liquidated substantially all of its non-
CrystalJet based thermal inkjet output products at significantly less than
their historical values. While the Company brought its new CrystalJet
technology to market in 1998, CrystalJet revenue made up only 3% of the
hardware and supplies revenue as the technology suffered from unexpected
delays and technical difficulties related to the CrystalJet manufacturing
process. In connection with the Plan for Orderly Shutdown, operations relating
to the CrystalJet products were terminated. Input devices made up 32% of the
hardware and supplies revenue. Throughout 1998, the Company's digitizer
product revenue declined primarily as a result of the impact of increasing
interchangeability of mouse input devices as an alternative to digitizer
tablet input devices made possible by recent releases of CAD application
software. Cutter products made up 10% of the hardware and supplies revenue.
Supplies revenue made up 35% of the hardware and supplies revenue. The
Company's service business made up 20% of the Company's total revenue in 1998.
In 1998, the Company's service business deteriorated as a result of fewer
service contracts being generated due to the lower product revenue and a lower
rate of service contract renewals as older generation products were retired
from service. Royalty revenue made up 12% of the Company's total revenue in
1998. This revenue was primarily the result of the Company's Joint Development
Agreement with Kodak regarding the CrystalJet technology which consists of
$14.6 million of royalty revenue and $4.0 million from milestone achievements.
The initial $2 million milestone under the Joint Development Agreement was
achieved and paid by Kodak in 1998. A second $2 million milestone was achieved
and was recorded as revenue but remains unpaid by Kodak which is withholding
payment pending resolution of its dispute with the Company relating to the
Joint Development Agreement. See "Business--Historic Business--Dispute with
Kodak."
Gross Profit. In 1998, amounts recognized from the Joint Development
Agreement made up $18.6 million of the Company's total gross profit of $21.0
million. Excluding the profit from the Joint Development Agreement, gross
profit as a percentage of revenue was 2% for 1998. The low gross profit as a
percentage of revenue was a result of selling price reductions required to
transition out of mature and end-of-life products, the manufacturing
inefficiencies resulting from decreased production volumes on the Company's
mature output products, start up cost inefficiencies on new products, and
delays in volume shipments of the CrystalJet wide format inkjet printers.
Operating Expenses. Operating expenses for 1998 were $187.2 million which
were made up of research and development expenses of $14.5 million, selling,
general and administrative expenses of $56.1 million, corporate expenses from
Lockheed Martin of $3.2 million, impairment charges of $112.1 million and
restructuring charges of $1.3 million.
34
<PAGE>
Research and development expenses of $14.5 million in 1998 were primarily
focused on development efforts to further the output device market and
expanding the inkjet technology and related platforms. In conjunction with the
Plan for Orderly Shutdown, the Company has suspended any further research and
development efforts.
Selling, general and administrative expenses were $56.1 million and were
focused primarily on furthering the output device market and bringing
CrystalJet and related products to market, liquidating substantially all of
its non-CrystalJet based thermal inkjet output products and streamlining the
European business.
Corporate expenses from Lockheed Martin were $3.2 million in 1998 and were a
result of charges for services received under the intercompany services
agreement with Lockheed Martin.
Impairment charges of $112.1 million were taken in the fourth quarter of
1998. These impairment charges relate to the Company's decision to focus its
efforts and resources on the CrystalJet product line and to divest its input
device, cutter, and non-CrystalJet service and support businesses as these
businesses were considered non-strategic. In connection with this decision,
the Company recorded a one-time non-cash impairment charge in the fourth
quarter of $72 million to write-down the carrying value of the net assets of
these businesses to their estimated fair value. In addition, the Company
evaluated the business model and strategy of its continuing operations. As a
result, in the fourth quarter, the Company recorded non-cash charges of $40.1
million related to the impairment of certain long-lived assets, including
goodwill. See "Business--Background and Summary of Significant Developments."
Restructuring charges of $1.3 million were taken in the fourth quarter of
1998 after a Company decision to streamline the Company's North American
operations and move CrystalJet manufacturing to Sunnyvale.
Interest Expense. Interest expense was $3.3 million for 1998 and was
primarily related to interest incurred on the Company's outstanding balances
under the Credit Agreements.
Income Tax Provision. Income tax benefit of $0.6 million in 1998 was
primarily related to foreign and state tax refunds recorded in 1998.
Year 2000 Compliance
Many existing computer systems and applications, and other control devices,
use only two digits to identify a year in the date field, without considering
the impact of the upcoming change in the century. Others do not correctly
process "leap year" dates. As a result, such systems and applications could
fail or create erroneous results unless corrected to process data related to
the year 2000 and beyond. The problems are expected to increase in frequency
and severity as the year 2000 approaches, and are commonly referred to as the
"Year 2000 Problem." The Company intends to complete an orderly shutdown of
its operations before the end of calendar year 1999; therefore, no additional
funding will be expended on the assessment process. Year 2000 issues are not
expected to impact the shutdown of Company operations.
35
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Certain information with respect to (i) each stockholder known by the
Company to be the beneficial owner of more than 5% of the outstanding Common
Stock, (ii) each of the current Directors, (iii) each of the named Executive
Officers, and all current Directors and Executive Officers as a group,
including the number of shares of the Company's Common Stock beneficially
owned by each of them as of March 31, 1999, is set forth below:
<TABLE>
<CAPTION>
Percent of
Shares of Outstanding
Name of Individual Common Stock Common Stock
or Identity of Group(1) Beneficially Owned Beneficially Owned
----------------------- ------------------ ------------------
<S> <C> <C>
Lockheed Martin Corporation
6801 Rockledge Drive
Bethesda, MD 20817.................. 40,742,957 86.7%
Arthur E. Johnson.................... -- --
John C. Batterton(2)................. 106,500(3) (4)
Gary P. Mann......................... -- --
Terry F. Powell...................... -- --
Kenneth R. Ratcliffe................. -- --
Jeffrey D. MacLauchlan............... -- --
James R. Bell(2)..................... 39,900(5) (4)
Andreas Bibl(2)...................... 500,000 1.1
John J. Millerick(2)................. 49,900(6) (4)
Renn Zaphiropoulos................... -- --
All Executive Officers and Directors
as a Group (10 persons)............. 696,300(7) 1.5
</TABLE>
- --------
(1) The address for each of the named individuals is c/o CalComp Technology,
Inc., 2411 W. La Palma Avenue, Anaheim, California 92801. Unless otherwise
indicated, the named persons possess sole voting and investment power with
respect to the shares listed (except to the extent such authority is
shared with spouses under applicable law).
(2) Mr. Batterton's employment was terminated by the Company effective June 1,
1999, and in connection therewith, he resigned as a director of the
Company. Mr. Bibl's employment was terminated by the Company effective
January 29, 1999. Mr. Bell's employment was terminated by the Company
effective February 1, 1999. Mr. Millerick's employment was terminated by
the Company effective June 1, 1999.
(3) Includes an aggregate of 106,500 shares which Mr. Batterton has, or will
have within 60 days after March 31, 1999, the right to acquire upon
exercise of outstanding options.
(4) Less than 1% of the outstanding shares of Common Stock.
(5) Includes an aggregate of 39,900 shares which Mr. Bell has, or will have
within 60 days after March 31, 1999, the right to acquire upon exercise of
outstanding options.
(6) Includes an aggregate of 49,900 shares which Mr. Millerick has, or will
have within 60 days after March 31, 1999, the right to acquire upon
exercise of outstanding options.
(7) Includes an aggregate of 196,300 shares which the Executive Officers and
Directors as a group have, or will have within 60 days after March 31,
1999, the right to acquire upon exercise of outstanding options.
36
<PAGE>
RELATIONSHIP AND RELATED TRANSACTIONS WITH LOCKHEED MARTIN
General. Because Lockheed Martin beneficially owns in excess of 85% of the
outstanding shares of the Company's Common Stock, Lockheed Martin is able to
elect all of the members of the Company's Board of Directors and exercise a
controlling influence over the business and affairs of the Company, including
any determinations with respect to mergers or other business combinations
involving the Company, the acquisition or disposition of assets by the
Company, the dissolution of the Company, the incurrence of indebtedness by the
Company, the issuance of any additional Common Stock or other equity
securities, and the payment of any dividends with respect to the Common Stock.
In addition, Lockheed Martin, by virtue of its controlling ownership, has the
power to approve matters submitted to a vote of the Company's stockholders (or
by written consent in lieu of a meeting) without the consent of the Company's
other stockholders; has the power to prevent a change in control of the
Company; and could seek to cause the Company to pay dividends, enter into
business or financial transactions with Lockheed Martin, sell assets, or take
other actions that might be favorable to Lockheed Martin.
The Company currently has a Board of Directors consisting of six members.
Four members of the Board are officers, directors or employees of Lockheed
Martin. Two members of the Board, Messrs. Ratcliffe and Zaphiropoulos, are
neither directors or officers nor employees of Lockheed Martin, nor officers
or employees of the Company. Lockheed Martin has agreed with the Company to
use its good faith efforts to continue to cause at least two of the members of
CalComp's Board of Directors to be independent of Lockheed Martin and the
Company. Subject to this agreement, Lockheed Martin has the ability to change
the size and composition of the Company's Board of Directors and committees of
the Board.
Revolving Credit Agreement. The Company and Lockheed Martin entered into a
revolving credit agreement (the "Revolving Credit Agreement") pursuant to
which Lockheed Martin agreed to provide, from time to time, financing for
repayment of specified indebtedness and general corporate purposes, including,
without limitation, financing the working capital needs of the Company and its
subsidiaries. The Revolving Credit Agreement had a term of two years from the
date of its execution, but could be terminated (or could have the maximum
borrowing limit reduced) after the first anniversary of the July 23, 1996
effective date of the Revolving Credit Agreement, at the Company's or Lockheed
Martin's option, upon at least 120 days' prior written notice of termination,
which notice could be given not more than 120 days prior to the first
anniversary. The Company and Lockheed Martin amended the Revolving Credit
Agreement to increase the aggregate amount of borrowings available to the
Company under the existing credit line from $33 million to $73 million, to
extend the maturity date to January 31, 1999, to eliminate the requirement for
compliance with certain financial ratio covenants, to eliminate the right of
Lockheed Martin to cancel the agreement upon 120 days prior written notice,
and to remove the security interest of Lockheed Martin in the assets of the
Company. In July 1998, in connection with the Debt Exchange, the Revolving
Credit Agreement was further amended to reduce the amount of borrowing
available to the Company under that agreement from $73 million to $13 million.
There was no required prepayment or scheduled reduction of availability of
loans under the Revolving Credit Agreement, as amended (the "Amended Revolving
Credit Agreement").
Loans outstanding under the Amended Revolving Credit Agreement, as amended,
bear interest, at the Company's option, either at (i) a rate per annum equal
to the higher of the Federal Funds rate plus 0.5% or the rate publicly
announced from time to time by Morgan Guaranty Trust Company of New York in
New York as its "prime" rate or (ii) LIBOR plus 2.0%. In addition, the Company
is required to pay Lockheed Martin a commitment fee equal to 0.45% per annum
on the amount of the available but unused commitment under the Revolving
Credit Agreement. During 1998, the Company paid Lockheed Martin an aggregate
of $3.3 million in interest and loan fees to Lockheed Martin.
The Amended Revolving Credit Agreement imposed certain negative and
affirmative covenants on the Company which limited the Company's ability to
incur indebtedness, to pay dividends, or to undertake certain corporate
actions (mergers, consolidations, etc.) without the prior approval of Lockheed
Martin. The Amended Revolving Credit Agreement also set forth certain events
of default. The events of default included, without
37
<PAGE>
limitation: (i) failure to pay interest or principal when due, (ii) material
breach of any representation or warranty, (iii) failure to perform certain
covenants, (iv) failure to pay other indebtedness when due or breach of any
other term contained in other agreements or instruments relating to other
indebtedness, (v) commencement of bankruptcy or reorganization proceedings,
(vi) an event of default under the Cash Management Facility (described below)
or (vii) the occurrence of certain events the result of which could reasonably
be expected to have a Material Adverse Effect. In the case of an Event of
Default, Lockheed Martin could, by notice in writing to the Company, terminate
the Amended Revolving Credit Agreement and demand payment of amounts owing
thereunder. At the present time, $13 million is owed to Lockheed Martin under
the Amended Revolving Credit Agreement.
Pursuant to the Amended Revolving Credit Agreement, Lockheed Martin has the
right to set off, appropriate and apply against any and all cash transferred
from the Company to Lockheed Martin in accordance with the Cash Management
Agreement (as defined below) and any and all credits, indebtedness or claims
at any time held or owing by Lockheed Martin to or for the credit or account
of the Company.
The Company is in default of its obligations under the Amended Revolving
Credit Agreement. However, Lockheed Martin has agreed to forbear from
exercising its rights and remedies under the Amended Revolving Credit
Agreement until the Secured Demand Loan is terminated.
Cash Management Agreement. The Company and Lockheed Martin entered into a
cash management agreement (the "Cash Management Agreement") pursuant to which
Lockheed Martin provides cash advances to the Company. The term of the Cash
Management Agreement, as amended, extends from the date of its execution
through January 31, 1999. In accordance with the terms of the Cash Management
Agreement, excess cash balances of the Company will first be deemed to be a
repayment of outstanding principal indebtedness under the Amended Revolving
Credit Agreement, with any excess being applied against advances or held as an
investment by Lockheed Martin on an overnight basis. The aggregate principal
amounts of cash invested with Lockheed Martin will bear interest at a rate per
annum equal to the Federal Funds Rate as in effect from time to time. Cash
shortfalls, up to $2 million, will be funded by Lockheed Martin on an
overnight basis, and will bear interest at a rate per annum equal to the
Federal Funds Rate as in effect from time to time. In August, September, and
November 1998, the Cash Management Agreement was amended ultimately increasing
the amount of borrowing available to the Company from $2 million to $30
million under the Cash Management Agreement. Pursuant to the terms of the Cash
Management Agreement, Lockheed Martin will have the right to set off,
appropriate and apply against any and all cash transferred from the Company to
Lockheed Martin under the Cash Management Agreement and any and all credits,
indebtedness or claims at any time held or owing by Lockheed Martin to or for
the credit or account of the Company.
At the present time, $30 million is owed to Lockheed Martin under the Cash
Management Agreement. Lockheed Martin has agreed to forbear from exercising
its rights and remedies under the Cash Management Agreement until the Secured
Demand Loan is terminated.
Secured Demand Loan. The Secured Demand Loan provides for Lockheed Martin to
make loans to the Company from time to time in an aggregate Maximum Available
Amount, to be agreed to by Lockheed Martin, which may be increased by Lockheed
Martin, in its sole and absolute discretion, upon requests for borrowing which
are in conformity with the cash requirements set forth in the Plan for Orderly
Shutdown. The Maximum Available Amount is subject to a Maximum Available
Amount Ceiling of $51 million, an amount based on the Company's initial
estimate of loan proceeds needed to fully fund the Plan for Orderly Shutdown.
The Maximum Available Amount, initially was set at $11 million. At April 30,
1999, the Maximum Available Amount had been increased to $20.1 million.
Lockheed Martin has the right to accept or reject, in whole or in part, any
request for borrowing based on its determination, in its sole discretion, as
to whether the Company is complying with, or making reasonable progress with
respect to, the Plan for Orderly Shutdown. Loans under the Secured Demand Loan
are to be repaid at the earlier to occur of (i) the business day following
written demand by Lockheed Martin or (ii) the Termination Date. "Termination
Date" is defined as the earlier of July 15, 1999 and the date on which
Lockheed Martin notifies the Company of termination based on (x) Lockheed
Martin's determination that the
38
<PAGE>
Company is not reasonably complying with, or making reasonable progress with
respect to, the Plan for Orderly Shutdown, which determination may be made in
the sole and absolute discretion of Lockheed Martin, (y) the occurrence of a
bankruptcy event (as defined in the Secured Demand Loan), or (z) the breach by
the Company of the Secured Demand Loan or the accompanying Security Agreement.
Under the Security Agreement, the Company granted to Lockheed Martin a
security interest in all of the assets of the Company securing the obligations
of the Company to Lockheed Martin under the Secured Demand Loan. The Secured
Demand Loan also provides for certain other obligations of the Company,
including covenants of the Company with respect to periodic notices, reports
and forecasts relating to the Plan for Orderly Shutdown. In addition, Lockheed
Martin agreed to forebear from exercising its rights and remedies to collect
amounts outstanding under the Credit Agreements until the Secured Demand Loan
is terminated.
The Secured Demand Loan also requires the Company to retain an independent
third-party liquidation specialist, acceptable to Lockheed Martin to review,
validate and, to the extent deemed necessary by Lockheed Martin in its sole
and absolute discretion, implement the Plan for Orderly Shutdown. In March
1999, Brincko Associates, Inc. was retained as the liquidation specialist
approved by Lockheed Martin, and Mr. John P. Brincko was appointed the Chief
Executive Officer of the Company. After his appointment, the Company conducted
an updated and more detailed analysis of the amount of loan proceeds needed to
fund the Plan for Orderly Shutdown, the Company revised its estimated funding
needs under the plan to an amount approximating $65 million.
The Company's latest estimate of funding needed to complete the Plan for
Orderly Shutdown and the Plan of Liquidation and Dissolution indicates
estimated liabilities to be $14 million in excess of proceeds expected from
asset sales and the maximum credit potentially available under the Secured
Demand Loan. As part of its review of the Company's funding requirements under
the Plan for Orderly Shutdown and the Plan of Liquidation and Dissolution,
Lockheed Martin has agreed to consider increasing the Maximum Available Amount
Ceiling, but there can be no assurance that such increase will be granted or
that Lockheed Martin will authorize the disbursement of all funds potentially
available under the Secured Demand Loan. Moreover, under the Secured Demand
Loan, Lockheed Martin has the right to accept or reject further increases in
the Maximum Available Amount based on its determination, in its sole
discretion, that the Company is not complying with and making reasonable
progress with respect to the Plan for Orderly Shutdown. No assurance can be
given that the Company will be able to settle with its creditors at amounts
estimated in the Plan for Orderly Shutdown, that estimated proceeds from asset
sales will occur, or that actual cash requirements will not exceed current
estimates for other reasons. Accordingly, there is substantial uncertainty as
to whether the Company will be able to complete the Plan for Orderly Shutdown
and the Plan of Liquidation and Dissolution. If the Company is unable to
obtain sufficient funds to complete the Plan for Orderly Shutdown and the Plan
of Liquidation and Dissolution out of proceeds from asset sales proceeds and
the Secured Demand Loan or other financing or it is unable to reach acceptable
settlements with all of its creditors, the Company may be forced to seek
protection from creditors under Federal Bankruptcy law or may become subject
to an involuntary bankruptcy proceeding. In the event of an insolvency
proceeding, claims of secured creditors, such as Lockheed Martin, may not be
able to be repaid in full and unsecured creditors may receive little, if
anything, for their claims. In any circumstance, holders of the Company's
common stock are not expected to receive any distributions of funds or assets
and the Plan for Orderly Shutdown and the Plan of Liquidation and Dissolution
do not contemplate any such distributions.
BAI Agreement. Pursuant to the Secured Demand Loan, the Company retained
Brincko Associates Inc. ("BAI") to serve as liquidation specialist and
formally entered into an agreement with BAI effective March 22, 1999. The BAI
agreement provides for the appointment of John P. Brincko, a principal of BAI,
as the Company's Chief Executive Officer.
Services Agreement. In connection with the Exchange, the Company and
Lockheed Martin also entered into a services agreement ("Services Agreement")
with respect to the services to be provided by Lockheed Martin. The Services
Agreement provides that Lockheed Martin will furnish to the Company a package
of services in exchange for a services fee, which will be determined by
Lockheed Martin recognizing to the extent practicable, (i) Lockheed Martin's
percentage ownership of the Company, (ii) the Company's requirements for
certain
39
<PAGE>
services for which CalComp Inc. or the Company was previously charged by
Lockheed Martin or other third parties and (iii) costs of obtaining services
from third parties that previously were provided to CalComp Inc. by Lockheed
Martin. The Services Agreement will expire two years after the date of its
execution, but may be terminated by Lockheed Martin, at its option, upon not
less than 90 days' prior written notice to the Company, provided that Lockheed
Martin no longer owns Common Stock representing more than 50% of all of the
issued and outstanding Common Stock of the Company. The Company may terminate
the Services Agreement by providing not less than 90 days prior written notice
to Lockheed Martin at any time that Lockheed Martin owns less than 25% of all
of the issued and outstanding Common Stock of the Company. Consistent with
past practices, the method used to determine amounts to be charged the Company
will be in accordance with the requirements of Cost Accounting Standard
9904.403 ("CAS 403") "Allocation of Home Office Expenses to Segments." CAS 403
establishes the formulas and criteria for the allocation of home office
expenses to organizational segments and is promulgated by the Cost Accounting
Standards Board and used by contractors to the United States Government.
Lockheed Martin's allocations are reviewed for compliance with the promulgated
standards by the Department of Defense. In fiscal 1998, Lockheed Martin billed
the Company approximately $3.2 million under the Services Agreement.
The services provided by Lockheed Martin under the Services Agreement
include certain tax services; corporate control and audit services; insurance
planning and advice; health, safety and environmental management services;
human resources and employee relations services; legal services; employee
benefit plans administration and services; and treasury services.
The Company has agreed to indemnify Lockheed Martin, except in certain
limited circumstances, against liabilities that Lockheed Martin may incur that
are caused by or arise in connection with the Company's failure to fulfill its
obligations under the Services Agreement.
In addition to the service agreement fees, the Company has entered into
various support agreements with Lockheed Martin to provide, among other
things, that Lockheed Martin undertake to provide certain services for and at
the request of the Company including, but not limited to, administration of
the pension and savings plan, legal and other general administrative services
and group medical, liability and workers' compensation insurance. Expenses are
allocated to the Company based on actual amounts incurred on behalf of the
Company plus estimated overhead related to such amounts. Amounts billed to the
Company were $4.3 million in 1998. Such amounts are allocated to various cost
elements in the financial statements based on relevant factors which include
headcount and square footage.
Corporate Agreement. The Company and Lockheed Martin also entered into a
corporate agreement (the "Corporate Agreement") in connection with the
Exchange. Under the terms of the Corporate Agreement, the Company has agreed
that, for so long as Lockheed Martin continues to own 50 percent or more of
the Common Stock of the Company, the Company will propose, at each election of
directors (including elections to fill vacancies) a slate of directors or
individual directors such that at least 66 percent of the Board of Directors
of the Company is comprised of persons designated by Lockheed Martin. The
Corporate Agreement also obligates Lockheed Martin and the Company to use
their good faith efforts to cause at least two individual directors of the
Company to be independent of both the Company and Lockheed Martin within the
meaning of the rules of the New York Stock Exchange regarding who may serve on
the audit committee of a company listed on such exchange. Subject to these
agreements, Lockheed Martin will be able to elect 100% of the directors for so
long as Lockheed Martin owns more than 50 percent of the combined voting power
of the Company.
In addition, the Corporate Agreement provides that for so long as Lockheed
Martin maintains ownership of 50 percent or more of the Common Stock, the
Company may not take any action or enter into any commitment or agreement
which may reasonably be anticipated to result, with or without notice and with
or without lapse of time, or otherwise, in a contravention or event of default
by Lockheed Martin of (i) any provision of applicable law or regulation,
including, but not limited to, provisions pertaining to ERISA, (ii) any
provision of Lockheed Martin's Charter or Bylaws, (iii) any credit agreement
or other material instrument binding upon any Lockheed Martin entity, or (iv)
any judgment, order or decree of any governmental body, agency or court having
40
<PAGE>
jurisdiction over any Lockheed Martin entity. Additionally, for so long as
Lockheed Martin continues to own 50 percent or more of the Common Stock of the
Company, the Company may not take any action reasonably expected to result in
a material increase in liabilities required to be included in its consolidated
financial statements, nor may it materially increase its obligations under any
employee benefit plan, without the prior written consent of Lockheed Martin.
The Corporate Agreement also provides that nothing contained in the Corporate
Agreement is intended to limit or restrict in any way the ability of Lockheed
Martin to control or limit any action or proposed action of the Company,
including but not limited to, the incurrence by the Company of indebtedness,
based upon Lockheed Martin's internal policies or other factors.
Registration Rights Agreement. In connection with the Exchange, the Company
also entered into a registration rights agreement (the "Registration Rights
Agreement") with Lockheed Martin. Under the Registration Rights Agreement,
until Lockheed Martin or its assignees can sell all of the registrable
securities then owned in a single market transaction pursuant to Rule 144(k)
under the Securities Act of 1933, as amended (the "Securities Act"), in the
case of any proposed registration of shares of capital stock or other
securities of the Company, Lockheed Martin or its assignees shall have the
right, subject to certain limitations contained therein, to elect to include
in such registration statement all or a part of their registrable securities
(a "Piggyback Registration").
Under the Registration Rights Agreement, at any time after the date of the
Registration Rights Agreement and from time to time thereafter, Lockheed
Martin (or an assignee owning in the aggregate at least 25% of the Common
Stock issued to Lockheed Martin as of the date of the execution of the
Registration Rights Agreement) may cause the Company to use its best efforts
to file a registration statement to register under the Securities Act for sale
to the public all or a portion of the registrable securities of Lockheed
Martin or its assignees, and thereafter use its best efforts to file any and
all amendments as may be necessary to cause the registration statement to be
declared effective. The Company will have no obligation, however, to register
any securities under the Registration Rights Agreement unless the reasonably
anticipated aggregate offering price to the public of such securities, as
stated by Lockheed Martin or its assignees in their written registration
request, equals or exceeds $15 million. In addition, the Company will have no
obligation to file more than three registration statements on a form other
than Form S-3 and in no event will it be required to file more than four
registration statements in total. The costs and expenses (other than
underwriting discounts, commissions and similar payments) of all registrations
will be borne by the Company.
The Registration Rights Agreement contains indemnification and contribution
provisions (i) by Lockheed Martin and its assignees for the benefit of the
Company and related persons, (ii) by the Company for the benefit of Lockheed
Martin and the other persons entitled to effect registrations of Common Stock
pursuant to its terms and (iii) related persons.
Tax Sharing Agreement. The Company and Lockheed Martin also entered into a
tax sharing agreement (the "Tax Sharing Agreement"), effective the date of the
Exchange. Pursuant to the Tax Sharing Agreement, the Company and Lockheed
Martin will make payments between them such that, with respect to any period,
the amount of taxes to be paid by the Company or any refund payable to the
Company will be determined as though the Company were to file separate
federal, state and local income tax returns (including any amounts determined
to be due as a result of a redetermination of the tax liability of Lockheed
Martin arising from an audit or otherwise) as the common parent of an
affiliated group of corporations filing a consolidated return rather than a
consolidated subsidiary of Lockheed Martin. Under the Tax Sharing Agreement,
for so long as the Company remains part of the Lockheed Martin combined
consolidated group for federal income tax purposes, the Company will be
entitled to the benefit of any tax attribute attributable to the Company that
could be used by the Company if it were not part of the Lockheed Martin
combined consolidated group. At such time as the Company ceases to be included
in the Lockheed Martin combined consolidated group for federal income tax
purposes, the Company shall no longer be entitled to the benefit of any tax
attribute created while part of the Lockheed Martin combined consolidated
group that would otherwise have been attributable to the Company.
41
<PAGE>
In determining the amount of tax sharing payments, Lockheed Martin will
prepare a pro forma consolidated return for the Company that reflects the same
positions and elections used by Lockheed Martin in preparing the returns for
the Lockheed Martin consolidated group. Lockheed Martin will continue to have
all the rights of a common parent of a consolidated group, will be the sole
and exclusive agent for the Company in any and all matters relating to the
income tax liability of the Company, will have sole and exclusive
responsibility for the preparation and filing of consolidated federal and
consolidated or combined state income tax returns (or amended returns), and
will have the power, in its sole discretion, to contest or compromise any
asserted tax adjustment or deficiency and to file, litigate or compromise any
claim or refund on behalf of the Company. Interest required to be paid by or
to the Company with respect to any federal income tax pursuant to the Tax
Sharing Agreement shall be computed at the rate and in the manner provided in
the Internal Revenue Code of 1986 for interest on underpayments and
overpayments, respectively, of federal income tax for the relevant period. Any
interest required to be paid by or to the Company with respect to any state or
local income tax or franchise tax return shall be computed at the rate and in
the manner as provided under the applicable state or local statute for
interest on underpayments and overpayments, respectively, of such tax for the
relevant period.
Under the Tax Sharing Agreement, the Company will reimburse Lockheed Martin
for any outside legal and accounting expenses incurred by Lockheed Martin in
the course of the conduct of any audit or contest regarding the Lockheed
Martin consolidated group, and for any other expenses incurred by Lockheed
Martin in the course of any litigation relating thereto, to the extent such
costs are reasonably attributable to an issue relating to the Company or its
subsidiaries; provided, however, that prior to incurring any such expenses,
Lockheed Martin shall consult with the Company and shall consider the
Company's views with regard to the retention of outside professional
assistance.
The Company believes that the amounts payable by, or charged to, the Company
under the terms of the forgoing agreements with Lockheed Martin, taken
collectively, are reasonable in the circumstances and are substantially at
market rates.
42
<PAGE>
ABSENCE OF APPRAISAL RIGHTS
Under the applicable provisions of the DGCL, the Company's Fourth Amended
and Restated Certificate of Incorporation and the Certificate of Designation
relating to the Preferred Stock, the Company's stockholders are not entitled
to dissenters' or appraisal rights with respect to the Plan of Liquidation and
Dissolution.
By Order of the Board of Directors
Arthur E. Johnson
Chairman of the Board
June , 1999
43
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CalComp Technology, Inc.
(In Process of Liquidation)
<TABLE>
<CAPTION>
Page
----
<S> <C>
Unaudited Financial Statements for the Quarter Ended March 28, 1999....... F-2
Consolidated Statements of Net Liabilities in Liquidation at March 28,
1999 (Unaudited) and December 27, 1998................................. F-3
Unaudited Consolidated Statement of Changes in Net Liabilities in
Liquidation for the Three Months Ended March 28, 1999.................. F-4
Notes to Unaudited Consolidated Financial Statements.................... F-5
Audited Financial Statements for the Fiscal Year Ended December 27, 1998.. F-13
Report of Independent Auditors.......................................... F-14
Consolidated Statement of Net Liabilities in Liquidation at December 27,
1998................................................................... F-15
Consolidated Statement of Operations for the Year Ended December 27,
1998................................................................... F-16
Consolidated Statement of Stockholders' Equity for the Year Ended
December 27, 1998...................................................... F-17
Consolidated Statement of Cash Flows for the Year Ended December 27,
1998................................................................... F-18
Notes to Consolidated Financial Statements.............................. F-19
</TABLE>
F-1
<PAGE>
UNAUDITED FINANCIAL STATEMENTS FOR THE QUARTER ENDED
MARCH 28, 1999
The following Unaudited Consolidated Financial Statements for the Quarter
ended March 28, 1999, together with the notes thereto (the "Unaudited
Financial Statements"), should be read in conjunction with the Audited
Financial Statements for the fiscal year ended December 27, 1998, and the
notes thereto (the "Audited Financial Statements"). The Unaudited Financial
Statements update certain of the information provided in the Audited Financial
Statements relating to significant developments and contingencies. The Audited
Financial Statements are included in this Information Statement immediately
after the Unaudited Financial Statements.
F-2
<PAGE>
CALCOMP TECHNOLOGY, INC.
(In Process of Liquidation)
CONSOLIDATED STATEMENTS OF NET LIABILITIES IN LIQUIDATION
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
March 28, December 27,
ASSETS 1999 1998
------ ----------- ------------
(Unaudited)
<S> <C> <C>
Cash................................................. $ 9,453 $ 3,280
Accounts receivable.................................. 2,577 7,775
Inventories.......................................... 1,165 5,966
Prepaid expenses and other assets.................... 977 1,033
Net assets held for sale............................. -- 1,430
Property, plant and equipment........................ 2,355 2,455
---------- ----------
Total assets....................................... 16,527 21,939
---------- ----------
<CAPTION>
LIABILITIES
-----------
<S> <C> <C>
Accounts payable..................................... 8,775 12,308
Accrued salaries and related expenditures............ 16,707 20,697
Operating expenses during liquidation period......... 14,314 21,647
Commitment cancellation costs........................ 5,895 15,433
Secured demand loan with Lockheed Martin............. 15,716 --
Net service liabilities held for sale................ 3,966 --
Other liabilities.................................... 16,154 16,854
---------- ----------
Total liabilities.................................. 81,527 86,939
---------- ----------
Net liabilities in liquidation....................... $ (65,000) $ (65,000)
========== ==========
Contingencies (Note 2)
Number of common shares outstanding.................. 47,120,650 47,120,650
========== ==========
Net liabilities in liquidation per share............. $ (1.38) $ (1.38)
========== ==========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-3
<PAGE>
CALCOMP TECHNOLOGY, INC.
(In Process of Liquidation)
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN NET LIABILITIES IN LIQUIDATION
For the Three Months Ended March 28, 1999
(In thousands)
<TABLE>
<S> <C>
Net liabilities in liquidation, December 27, 1998................... $(65,000)
Net changes in estimated fair values and settlement amounts for
assets and liabilities............................................. --
--------
Net liabilities in liquidation, March 28, 1999...................... $(65,000)
========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-4
<PAGE>
CALCOMP TECHNOLOGY, INC.
(In Process of Liquidation)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Background and Summary of Significant Developments
The Company has been a supplier of both input and output computer graphics
peripheral products consisting of (i) printers (including plotters), (ii)
cutters, (iii) digitizers, and (iv) large format scanners. In general, the
Company's products were designed for use in computer aided design and
manufacturing ("CAD/CAM"), printing and publishing, and graphic arts markets,
both domestically and internationally. The Company also maintained service,
product support and technical assistance programs for its customers and sold
software, supplies and after-warranty service.
In recent years, the Company had begun transitioning its traditional pen,
electrostatic and most thermal technology products to inkjet plotters and
printers. Generally, inkjet technology products provide increased user
productivity compared to traditional pen plotters and solid area fill
capability for applications requiring graphic imaging. By the end of 1997, the
Company had substantially completed its strategy to discontinue its non-inkjet
printer and plotter products.
In the fourth quarter of 1997, the Company completed the development of a
new line of wide-format digital printers based on its proprietary piezo inkjet
technology obtained through the acquisition of Topaz Technologies, Inc.
("Topaz") in 1996. This new line of printers was marketed under the
"CrystalJet(TM)" name and targeted at the graphic arts industry. The Company
began shipping the initial market development and demonstration units of these
printers in the first quarter of 1998. Although volume shipments to customers
of CrystalJet products commenced in the second quarter and increased during
the remainder of the fiscal year, the projected profitability of the
CrystalJet products was dependent on achieving greater production volumes and
wider market acceptance than could reasonably be anticipated to occur in the
near term and would have required substantial infusions of new capital which
the Company was unable to obtain. Although the new CrystalJet technology
proved viable, the Company believes that production delays, technical
difficulties in the manufacturing processes and a failure to gain timely
market acceptance resulted in continuing operating losses and negative cash
flow, which materially and adversely affected the Company's business plan for
the CrystalJet technology and in significant part, resulted in the Company's
liquidity crisis discussed further below.
As part of its piezo inkjet technology development, in March 1998, the
Company entered into a Patent License and Joint Development Agreement with
Eastman Kodak Company ("Kodak") that provided an initial payment of $20
million in April 1998 and contemplated an additional $16 million in cash over
the term to be funded incrementally upon the achievement of certain milestones
and the occurrence of certain events. The Company believes that the first
three milestones were achieved in 1998, entitling it to payments totaling $7
million; however, only the first $2 million milestone payment has been
received from Kodak because Kodak has disputed the attainment of the third
milestone and withheld the second milestone payment.
In July 1998, the Company engaged Salomon Smith Barney as an investment
advisor to assist the Company in the consideration of strategic alternatives.
In October 1998, the Company made the formal decision to focus its efforts and
resources on the CrystalJet product line and to divest its input device,
cutter, and non-CrystalJet service and support businesses as these businesses
were considered non-strategic. In connection with this decision, the Company
recorded a one-time non-cash impairment charge in the fourth quarter of $72
million to write-down the carrying value of the net assets of these businesses
to their estimated fair value. In addition, the Company evaluated the business
model and strategy of its continuing operations. As a result, in the fourth
quarter, the Company recorded non-cash charges of $40.1 million related to the
impairment of certain long-lived assets, including goodwill.
F-5
<PAGE>
CALCOMP TECHNOLOGY, INC.
(In Process of Liquidation)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In July 1998, the Company also entered into an Exchange Agreement with
Lockheed Martin Corporation ("Lockheed Martin"), which is the majority
shareholder, principal creditor and source of capital funding of the Company,
pursuant to which, the Company exchanged $60 million of outstanding debt owed
to Lockheed Martin under a Revolving Credit Agreement for 1,000,000 shares of
Series A Preferred Stock (the "Preferred Stock") of the Company (the "Debt
Exchange"). In connection with the Debt Exchange, the Revolving Credit
Agreement was amended to reduce the amount of borrowing available to the
Company under that agreement from $73 million to $13 million. In August,
September, and November 1998, a related Cash Management Agreement was amended
which ultimately increased the amount of borrowing available to the Company
from $2 million to $30 million under the Cash Management Agreement, thereby
providing a maximum borrowing availability of $43 million to the Company under
these agreements (the "Credit Agreements") (which was fully drawn in January
1999 and remains outstanding).
In a letter dated December 23, 1998, Lockheed Martin Corporation ("Lockheed
Martin") notified the Company that it would not increase the Company's credit
availability, needed to fund the Company's continuous operations, beyond the
$43 million then available under the Company's Revolving Credit Agreement and
related Cash Management Agreement (collectively, the "Credit Agreements") with
Lockheed Martin, but indicated it would consider funding an orderly shutdown.
At such date, the Company anticipated that, to fund operating requirements, it
would require the $4.9 million remaining under the Credit Agreements in
January 1999. On December 28, 1998, the Company indicated its intent to accept
Lockheed Martin's proposal to fund a non-bankruptcy orderly shut-down of the
Company's operations in accordance with a plan to be proposed by the Company.
On January 14, 1999, the Company's directors approved and submitted the
Company's plan ("Plan for Orderly Shutdown") to Lockheed Martin for their
review and approval. As a result of this liquidity crisis and after
considering its lack of strategic alternatives, in particular, given the
Company's inability to obtain funding from sources other than Lockheed Martin,
on January 15, 1999, the Company announced that it would commence an orderly
shutdown of its operations. Under the Plan for Orderly Shutdown approved by
the Company's Board of Directors, the Company completed a Secured Demand Loan
Facility ("Secured Demand Loan") with Lockheed Martin, pursuant to which
Lockheed Martin agreed to provide, subject to the terms and conditions set
forth in such facility, funding to the Company in addition to the $43 million
available under the Credit Agreements. The Secured Demand Loan would provide
funds to assist the Company in the non-bankruptcy shutdown of its operations
pursuant to the Plan for Orderly Shutdown. In addition, Lockheed Martin agreed
to forebear from exercising its rights and remedies to collect amounts
outstanding under the Credit Agreements until the Secured Demand Loan is
terminated. In connection with the Plan for Orderly Shutdown, it was
anticipated that the Company would cause the dissolution, merger or
consolidation of its subsidiaries with the Company, and that the Company,
itself, would then proceed with its own formal winding up and dissolution. On
April 29, 1999, the Company's Board of Directors (a) authorized the merger
with and into CalComp Technology, Inc. of all the Company's subsidiaries
organized under the laws of any state of the United States and (b) approved
and adopted the Plan of Complete Liquidation and Dissolution (the "Plan of
Liquidation and Dissolution"). Lockheed Martin, as holder of a majority of the
outstanding shares of Common Stock and holder of all of the outstanding shares
of Preferred Stock, executed a written consent on May 12, 1999 approving the
Plan of Liquidation and Dissolution. The Plan of Liquidation and Dissolution
will not become effective until at least (20) days after mailing of this
Information Statement to holders of the Company's common stock.
Pursuant to the Plan of Liquidation and Dissolution, the Company will be
liquidated by (i) the sale (or sales) of substantially all of its remaining
assets, including its CrystalJet assets, and (ii) after payment of all the
claims, obligations and expenses owing to the Company's creditors, by cash and
in-kind distributions (if any) to the holder of the Preferred Stock (up to the
$60.0 million, plus accrued and unpaid dividends, aggregate liquidation
preference of the Preferred Stock), with the remainder (if any) to holders of
the Common Stock on a pro rata basis, and, if deemed necessary, appropriate or
desirable by the Board of Directors, by distributions of its assets and funds
from time to time to one or more liquidating trusts established for the
benefit of stockholders (subject
F-6
<PAGE>
CALCOMP TECHNOLOGY, INC.
(In Process of Liquidation)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
to the claims of creditors), or by a final distribution of its then remaining
assets to a liquidating trust established for the benefit of stockholders
(subject to the claims of creditors). Based on the anticipated value of the
Company's assets and the amounts owed to creditors of the Company, the Company
does not believe it will have any funds or assets remaining to make
distributions to either preferred or common stockholders. Therefore, it is
highly unlikely that any distributions will be made to stockholders.
Since the announcement of the Plan for Orderly Shutdown, the Company has
ceased all manufacturing, sales and marketing activities and scaled back
operations to a level designed to allow the Company to sell or liquidate its
assets in a manner that takes into account the interests of the Company's
stockholders, creditors, employees, customers and suppliers. To date, the
Company has consummated or entered into letters of intent for the sales of
substantially all of its non-CrystalJet assets. However, no assurances can be
given that pending transactions will be consummated. Additionally, pursuant to
the Plan for Orderly Shutdown, the Company has issued notices to its domestic
employees under the Worker Adjustment and Retraining Notification Act
(W.A.R.N.) and, as of April 30 1999, has terminated 433 employees, or 84% of
the Company's domestic workforce. Non-U.S. employees have also been terminated
or notified of their scheduled termination under applicable foreign laws.
Certain of the Company's sales and service personnel, pending sales of
specified assets, and an administrative team (including the newly appointed
Chief Executive Officer) will wind up the operations of the Company through
the shutdown process which is expected to be substantially completed by July
1999. The Company anticipates that it will be able to negotiate reasonable
settlement amounts with its non-affiliated creditors but the Company's ability
to make payments on the agreed settlement amounts will depend on receiving
sufficient cash from the sale of its assets and securing additional funding
sufficient for the Plan for Orderly Shutdown.
The Secured Demand Loan provides for Lockheed Martin to make loans to the
Company from time to time up to an aggregate maximum available amount (the
"Maximum Available Amount"), specified by Lockheed Martin, which may be
increased by Lockheed Martin, in its sole and absolute discretion, upon
requests for borrowing that are in conformity with the cash requirements set
forth in the Plan for Orderly Shutdown. The Maximum Available Amount is
subject to a ceiling ("Maximum Available Amount Ceiling") of $51 million, an
amount based on the Company's initial estimate of loan proceeds needed to
fully fund the Plan for Orderly Shutdown. The Maximum Available Amount,
initially, was set at $11 million. At April 30, 1999, the Maximum Available
Amount had been increased to $20.1 million. Lockheed Martin has the right to
accept or reject, in whole or in part, any request for borrowing based on its
determination, in its sole discretion, as to whether the Company is complying
with, or making reasonable progress with respect to, the Plan for Orderly
Shutdown. Loans under the Secured Demand Loan are to be repaid at the earlier
to occur of (i) the business day following written demand by Lockheed Martin
or (ii) the Termination Date. The "Termination Date" is defined as the earlier
of July 15, 1999, or the date on which Lockheed Martin notifies the Company of
termination based on (x) Lockheed Martin's determination that the Company is
not reasonably complying with, or making reasonable progress with respect to,
the Plan for Orderly Shutdown, which determination may be made in the sole and
absolute discretion of Lockheed Martin, (y) the occurrence of a bankruptcy
event (as defined in the Secured Demand Loan), or (z) the breach by the
Company of the Secured Demand Loan or the accompanying Security Agreement.
Under the Security Agreement, the Company granted to Lockheed Martin a
security interest in all of the assets of the Company and its principal
domestic subsidiaries to secure the obligations owing to Lockheed Martin under
the Secured Demand Loan. The Secured Demand Loan also provides for certain
other obligations of the Company, including covenants of the Company with
respect to periodic notices, reports and forecasts relating to the Plan for
Orderly Shutdown.
The Secured Demand Loan required the Company to retain an independent third-
party liquidation specialist acceptable to Lockheed Martin to review, validate
and, to the extent deemed necessary by Lockheed Martin in its sole and
absolute discretion, implement the Plan for Orderly Shutdown. In March 1999,
Brincko Associates, Inc.
F-7
<PAGE>
CALCOMP TECHNOLOGY, INC.
(In Process of Liquidation)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
was retained as the liquidation specialist approved by Lockheed Martin, and
Mr. John P. Brincko was appointed the Chief Executive Officer of the Company.
After his appointment, the Company conducted an updated and more detailed
analysis of the amount of loan proceeds needed to fund the Plan for Orderly
Shutdown, and revised its estimate of funding needed under the Secured Demand
Loan to approximately $65 million.
As noted above, the Company's latest estimate of funding needed to complete
the Plan for Orderly Shutdown and the Plan of Liquidation and Dissolution
indicates estimated liabilities to be $14 million in excess of amounts
expected from asset sales proceeds and the maximum available under the Secured
Demand Loan. As part of its review of the Company's funding requirements under
the Plan for Orderly Shutdown and the Plan of Liquidation and Dissolution,
Lockheed Martin has agreed to consider increasing the Maximum Available Amount
Ceiling, but there can be no assurance that such increase will be granted or
that Lockheed Martin will authorize the disbursement of all funds potentially
available under the Secured Demand Loan. Additionally, there can be no
assurance that the Company will be able to settle with its creditors at
amounts estimated in the Plan for Orderly Shutdown, that estimated cash
inflows from asset sales will occur, or that actual net cash funding
requirements will not exceed current estimates for any other reason.
Accordingly, there is substantial uncertainty as to whether the Company will
be able to complete the Plan for Orderly Shutdown and the Plan of Liquidation
and Dissolution. If the Company is unable to obtain sufficient funds to
complete the Plan for Orderly Shutdown and the Plan of Liquidation and
Dissolution out of the proceeds from the sales of its remaining assets and the
Secured Demand Loan or other financing or it is unable to reach acceptable
settlements with all of its creditors, the Company may be forced to seek
protection from creditors under Federal Bankruptcy law or may become subject
to an involuntary bankruptcy proceeding. In the event of a bankruptcy or
insolvency proceeding, claims of secured creditors, such as Lockheed Martin,
may not be able to be repaid in full and unsecured creditors may receive
little, if anything, for their claims. In any circumstance, it is highly
unlikely the holders of the Company's preferred and common stock will receive
any distributions of funds or assets, and neither the Plan for Orderly
Shutdown nor the Plan of Liquidation and Dissolution contemplates any such
distributions.
On January 27, 1999, the Company's Common Stock was delisted from the Nasdaq
National Market System due to the Company's failure to maintain certain
listing requirements. At the present time, the Company's Common Stock
continues to trade on the over-the-counter bulletin board market maintained by
Nasdaq. It is expected that the Company's Common Stock will be deregistered
under Rule 12g-4 of the Securities Exchange Act of 1934 in connection with the
Company's Plan of Liquidation and Dissolution.
Liquidation Basis of Accounting
As a result of the Board of Directors approving the Plan for Orderly
Shutdown, the accompanying consolidated financial statements have been
presented based on the liquidation basis of accounting to provide more
relevant information.
The liquidation basis of accounting requires that assets and liabilities be
stated at estimated fair value. Accordingly, the statements of net liabilities
in liquidation reflects assets and liabilities based on their estimated fair
values and estimated settlement amounts. Changes in the estimated liquidation
value of assets and liabilities are recognized in the period in which such
refinements are known.
The Company established the carrying values for its assets and liabilities
as reflected in the consolidated statement of net liabilities in liquidation
as of December 27, 1998, using estimates of the fair values of assets and
settlement amounts of liabilities developed in March 1999 giving consideration
to all information available at that time. The Company believes there is
insufficient additional information presently available to determine whether a
change to its estimate of the deficiency in the fair value of its assets as
compared to the estimated
F-8
<PAGE>
CALCOMP TECHNOLOGY, INC.
(In Process of Liquidation)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
settlement amounts for its liabilities is necessary. Accordingly, no
refinement to this estimate was made in preparing the consolidated statement
of net liabilities in liquidation as of March 28, 1999.
Organization and Basis of Presentation
The consolidated financial statements included herein have been prepared by
the Company, without audit, and include all adjustments which, in the opinion
of management, are necessary for a fair presentation of the consolidated net
liabilities in liquidation as of March 28, 1999. Certain information and
footnote disclosures normally included in financial statements prepared on the
liquidation basis of accounting have been condensed or omitted in accordance
with principles for interim period financial reporting, although the Company
believes the disclosures in these financial statements are adequate to make
the information presented not misleading. These condensed financial statements
should be read in conjunction with the Company's consolidated financial
statements as of and for the year ended December 27, 1998, and notes thereto,
included elsewhere herein and in the Company's Annual Report filed with the
Securities and Exchange Commission on Form 10-K for the year ended December
27, 1998.
The Company is an 86.7% owned subsidiary of Lockheed Martin. The
consolidated financial statements include the accounts of the Company and its
wholly owned subsidiaries. All significant intercompany transactions and
balances have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in accordance with generally
accepted accounting principles under the liquidation basis of accounting
requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Significant
estimates have been made relative to the valuation of all assets and
liabilities of the Company, including, among others, estimates for warranties
and settlement of litigation and long-term lease commitments. Such estimates
have been developed pursuant to the provisions of the Plan for Orderly
Shutdown. Actual results may differ from amounts estimated.
2. CONTINGENCIES
Legal
A complaint was filed on October 14, 1997, by Wacom Co., Ltd. and Wacom
Technology Corp. ("Wacom"), against CalComp Inc., a wholly-owned subsidiary of
the Company ("CalComp"), in the U.S. District Court for the Central District
of California. The complaint alleged, among other things, that CalComp's sale
of ULTRASLATE digitizer tablets infringes three patents and infringes Wacom's
common law trademark, ULTRAPEN. Wacom's request for a preliminary injunction
concerning infringement of two of the three patents was denied by the Court on
February 12, 1998. Wacom was seeking damages and permanent injunctive relief
with respect to alleged infringement of the three patents, pre-judgment
interest and, among other things, requested an award of its attorneys' fees
and costs.
In March 1999, Wacom unsuccessfully sought to enjoin the Company from
proceeding with the Plan of Orderly Shutdown.
Pursuant to a Settlement Agreement and Mutual Release dated effective as of
April 21, 1999, by and among Wacom, Wacom Co., Ltd. and CalComp, CalComp paid
$100,000 to Wacom, and CalComp acknowledged the validity, enforceability, and
the infringement of the subject patents and the trademark.
On July 8, 1998, Xaar Technology Limited ("Xaar") filed suit in the U.S.
District Court for the Northern District of California, against the Company,
CalComp Inc. (a wholly-owned subsidiary of the Company) and Topaz,
(collectively the "Defendants") alleging that the Defendants' manufacture and
sale of CrystalJet
F-9
<PAGE>
CALCOMP TECHNOLOGY, INC.
(In Process of Liquidation)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
piezoelectric inkjet printheads infringes Xaar's U.S. Pat. Nos. 4,879,568 and
5,003,679 which cover certain pulsed droplet deposition apparatus and certain
processes for manufacturing pulsed droplet deposition apparatus. The complaint
also alleges that the Defendants have induced others to infringe these
patents. The complaint seeks preliminary and permanent injunctive relief
against infringement of the Xaar patents, increased damages for willful
infringement of those patents, interest and award of its attorneys' fees and
costs. The Company has reviewed these patents and believes that the Company
will prevail over Xaar's claims, that the Company's piezoelectric technology
is proprietary to the Company and that the Company's manufacture and sale of
CrystalJet piezoelectric printheads does not infringe any valid claims of
either of these patents. Further, the Company intends to defend itself against
all claims in this lawsuit.
In March 1999, Xaar unsuccessfully sought to enjoin the Company from
proceeding with the Plan for Orderly Shutdown.
On April 20, 1999, Xaar's motion to amend the complaint to add Lockheed
Martin as a party was granted.
In a separate action, on July 6, 1998, Xaar filed suit in the English High
Court of Justice ("High Court") in London alleging that the Defendants and
CalComp Ltd., a U.K. subsidiary of CalComp Inc., have infringed or caused,
enabled, or assisted others to infringe, European patent (UK) number EP 0 277
703 ("703 Patent"), which covers certain pulsed droplet deposition apparatus
and certain processes for manufacturing pulsed droplet deposition apparatus,
as a result of sales of the Company's CrystalJet printers in the U.K. The
complaint seeks an injunction and damages or profits resulting from the
alleged infringement and, among other things, interest on any sums due Xaar
and an award of its costs. The Company has reviewed the patent in suit,
believes that the Company will prevail over Xaar's claims in this suit and
that the Company's sale of CrystalJet printers in the U.K. does not infringe
any valid claims of this patent. The Company has also counterclaimed for an
order revoking the "703 Patent. The Company intends to defend itself against
all claims made and to pursue its counterclaim for the revocation of the "703
Patent.
On September 7, 1998, the Company, CalComp Inc. and CalComp Ltd., filed an
action in the High Court to revoke Xaar's European Patent (UK) number EP 0 278
590 (the "590 Patent") which also covers certain pulsed droplet deposition
apparatus and certain processes for manufacturing pulsed droplet deposition
apparatus and which involves technology similar to that in the "703 Patent.
In March 1999, QRS 10-12 (TX), Inc. and QRS 11-5 (TX), Inc., the landlords
under the lease for the Company's former Austin, Texas headquarters
(collectively, "Landlord"), filed suit against the Company in the U.S.
District Court for the Southern District Court of New York claiming damages
equal to the present value of rent due for the remaining term of the lease.
The Company had ceased paying rent in January 1999. The Company has moved to
change the jurisdiction and venue of the case to Texas where it intends to
defend itself against the Landlord's claims.
In a separate action, on April 30, 1999, the Landlord filed suit against the
Company in the Court of Chancery of the State of Delaware (the "Delaware
Action") claiming damages under the terms of the lease; claiming compensatory
and punitive damages from the Company for an alleged breach of fiduciary duty
to creditors; and requesting that the court void alleged fraudulent transfers
of assets since October 1, 1998, require the Company to provide a complete
accounting, and provide such additional relief as the court may determine. In
addition, under the Delaware Action, the Landlord sought an expedited hearing
on its claims, and injunctive relief to enjoin the Company and its
subsidiaries from paying any debt to any creditor and to require the Company
to place in escrow to be held by the court all proceeds obtained from sales of
its assets. On May 12, 1999, the Landlord's motion for an expedited hearing
was denied.
F-10
<PAGE>
CALCOMP TECHNOLOGY, INC.
(In Process of Liquidation)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
If the Company were to determine that one of the Landlord's suits was
reasonably likely to result in a judgment that would compromise the Company's
ability to successfully complete the Plan for Orderly Shutdown, the Company
might be forced to seek protection from the Landlord under Federal Bankruptcy
law in order to statutorily limit the Landlord's claims so that all then
remaining creditors could share more fairly in the Company's then remaining
assets, if any. In any event, the Company believes that any payments to the
Landlord by way of judgment or settlement will be for substantially less than
the present value of the lease payments that might otherwise be owing through
the term of the lease.
On March 29, 1998, the Company and Eastman Kodak Co. ("Kodak") entered into
a Patent License and Joint Development Agreement (the "Joint Development
Agreement") covering the joint development of the Company's CrystalJet
technology into a range of products, printers and consumables for commercial
applications. The Joint Development Agreement has a term of five years and
provides for the contribution by Kodak of up to $36 million, with $20 million
having been advanced upon the signing of the Joint Development Agreement and
up to an additional $16 million to be funded incrementally over the term upon
the achievement of certain milestones and the occurrence of certain events. As
of December 1998, the initial $2 million milestone under the Joint Development
Agreement had been achieved and paid by Kodak. A second $2 million milestone
had been achieved and was recorded as revenue but remains unpaid by Kodak who
is withholding payment pending resolution of its dispute with the Company
relating to the Joint Development Agreement. The Company and Kodak are also in
dispute concerning the appropriate criteria applicable to an additional $3
million payment concerning a third milestone, notice of achievement of which
the Company has also delivered to Kodak. The Joint Development Agreement also
provides for royalties to be paid by Kodak to the Company in respect of
licenses granted thereunder which allow Kodak, under certain circumstances, to
exploit the inkjet technology developed under the terms of the agreement.
On May 13, 1999, Kodak filed suit against the Company and Lockheed Martin
(collectively, the "Defendants") in the Orange County Superior Court of the
State of California claiming (i) compensatory damages as a result of the
Defendants' alleged breaches of the Joint Development Agreement and the
covenant of good faith and dealing, and the Defendants' alleged negligent
misrepresentation; (ii) compensatory and exemplary damages as a result of the
Defendants' alleged fraud in inducing Kodak to believe that Lockheed Martin
would support the Company and that the Company would remain a viable entity
throughout the term of the Joint Development Agreement; and (iii) compensatory
and exemplary damages as a result of Lockheed Martin's alleged intentional
interference with the contract between the Company and Kodak. In each cause of
action, Kodak is seeking compensatory damages in excess of $22 million. In
addition, Kodak requests that (A) it be awarded a constructive trust over the
$22 million in funds it contributed to the project and any property acquired
therefrom; (B) the Defendants be required to provide an accounting of all
funds provided to and expended by the Defendants with respect to the project;
and (C) the court adjudge and declare the respective rights and duties of the
parties under the Joint Development Agreement. The Company intends to defend
itself vigorously, and to assert any counterclaims against Kodak available to
the Company, including without limitation counterclaims relating to Kodak's
failure to make milestone payments under the Joint Development Agreement.
The Company is also party to other legal actions arising from its Plan for
Orderly Shutdown. The Company believes that any such claims in material
amounts are without merit.
Because of their contingent nature, the Company does not believe that the
disposition of any of these matters will have a material adverse effect on its
net liabilities in liquidation, nor will the results of any lawsuits affect
the Company's determination to proceed with the Plan for Orderly Shutdown or
the Plan of Liquidation and Dissolution.
F-11
<PAGE>
CALCOMP TECHNOLOGY, INC.
(In Process of Liquidation)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Environmental Matters
In connection with the June 1997 sale of the Company's headquarters facility
in Anaheim, California, the Company agreed to remain obligated to address
certain environmental conditions which existed at the site prior to the
closing of the sale. In addition, Lockheed Martin has guaranteed the
performance of the Company under this environmental agreement.
In 1988, the Company submitted a plan to the California Regional Water
Quality Control Board ("the Water Board") relating to its facility in Anaheim,
California. This plan contemplated site assessment and monitoring of soil and
ground water contamination. In 1997, the Company, at the request of the Water
Board, submitted work plans to conduct off-site water investigations and on-
site soil remediation. In 1998, CalComp conducted an extensive aquifer
characterization and off-site plume delineation investigation. Afterwards, the
Board approved CalComp's work plans for Off-Site Plume Delineation and Source
Area Remediation. The Company has established reserves which it considers to
be adequate to cover the cost of investigations and tests required by the
Water Board, any additional remediation that may be requested and potential
costs of continued monitoring of soil and groundwater contamination, if
required.
The Company believes that it has adequately projected any future
expenditures in connection with environmental matters and does not believe
that the disposition of any of these matters will have a material adverse
effect on its net liabilities in liquidation, nor will any such expenditures
affect the Company's determination to proceed with the Plan for Orderly
Shutdown or the Plan of Liquidation and Dissolution.
F-12
<PAGE>
AUDITED FINANCIAL STATEMENTS FOR THE
FISCAL YEAR ENDED DECEMBER 27, 1998
The following Audited Consolidated Financial Statements for the fiscal year
ended December 27, 1998, together with the notes thereto (the "Audited
Financial Statements"), should be read in conjunction with the Unaudited
Financial Statements for the quarter ended March 28, 1999, and the notes
thereto (the "Unaudited Financial Statements"). The Unaudited Financial
Statements update certain of the information provided in the Audited Financial
Statements relating to significant developments and contingencies. The
Unaudited Financial Statements are included in this Information Statement
immediately prior to the Audited Financial Statements.
F-13
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
CalComp Technology, Inc.
We have audited the accompanying consolidated statement of net liabilities
in liquidation of CalComp Technology, Inc. as of December 27, 1998 and the
consolidated statements of operations, stockholders' equity, and cash flows
for the year then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
As described in Note 1 to the consolidated financial statements, on January
14, 1999, the Board of Directors approved a plan of orderly shutdown and
liquidation and, accordingly, the Company adopted the liquidation basis of
accounting effective December 27, 1998. The Company's consolidated statements
of operations and cash flows for the year ended December 27, 1998 have been
presented using accounting principles applicable to a going concern.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the net liabilities in liquidation
of CalComp Technology, Inc. as of December 27, 1998 and the consolidated
results of operations and cash flows of CalComp Technology, Inc. for the year
ended December 27, 1998, in conformity with generally accepted accounting
principles applied on the basis described in the preceding paragraph.
Ernst & Young LLP
Orange County, California
April 8, 1999
F-14
<PAGE>
CALCOMP TECHNOLOGY, INC.
(In Process of Liquidation)
CONSOLIDATED STATEMENT OF NET LIABILITIES IN LIQUIDATION
December 27, 1998
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
ASSETS
------
<S> <C>
Cash.............................................................. $ 3,280
Accounts receivable............................................... 7,775
Inventories....................................................... 5,966
Prepaid expenses and other assets................................. 1,033
Net assets held for sale.......................................... 1,430
Property, plant and equipment..................................... 2,455
-----------
Total assets.................................................... 21,939
-----------
<CAPTION>
LIABILITIES
-----------
<S> <C>
Accounts payable.................................................. 12,308
Accrued salaries and related expenditures......................... 20,697
Operating expenses during liquidation period...................... 21,647
Commitment cancellation costs..................................... 15,433
Other liabilities................................................. 16,854
-----------
Total liabilities............................................... 86,939
-----------
Net liabilities in liquidation.................................... $ (65,000)
===========
Commitments and contingencies (Note 3)
Number of common shares outstanding............................... 47,120,650
===========
Net liabilities in liquidation per share.......................... $ (1.38)
===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-15
<PAGE>
CALCOMP TECHNOLOGY, INC.
(In Process of Liquidation)
CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 27, 1998
(In thousands, except share and per share data)
<TABLE>
<S> <C>
Revenue:
Hardware and supplies............................................ $ 94,503
Service.......................................................... 30,577
Royalty.......................................................... 19,245
Sales to affiliates.............................................. 9,533
----------
Total revenue.................................................. 153,858
Cost of revenue:
Hardware and supplies............................................ 101,084
Service.......................................................... 24,400
Royalty.......................................................... 300
Sales to affiliates.............................................. 7,084
----------
Total cost of revenue.......................................... 132,868
----------
Gross profit................................................... 20,990
Operating Expenses:
Research and development......................................... 14,475
Selling, general and administrative.............................. 56,115
Corporate expenses from Lockheed Martin (Note 2)................. 3,172
Impairment charge (Note 1)....................................... 112,098
Restructuring charge............................................. 1,331
----------
Loss from operations............................................... (166,201)
Interest expense................................................... 3,289
Other income, net (Note 4)......................................... (111)
----------
Loss before income taxes........................................... (169,379)
Income tax benefit (Note 5)........................................ (578)
----------
Net loss....................................................... $ (168,801)
==========
Basic and diluted net loss per share of common stock........... $ (3.58)
==========
Weighted average number of common shares outstanding........... 47,105,617
==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-16
<PAGE>
CALCOMP TECHNOLOGY, INC.
(In Process of Liquidation)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional Cumulative Net
--------------- ------------- Paid-in Accumulated Translation Treasury Liabilities in
Shares Amount Shares Amount Capital Deficit Adjustment Stock Liquidation
------ -------- ------ ------ ---------- ----------- ----------- -------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 28,
1997................... -- $ -- 47,071 $ 471 $ 287,322 $(217,145) $ 5,550 $(465) $ --
Issuance of preferred
stock................. 1,000 60,000 -- -- -- -- -- -- --
Exercise of stock
options............... -- -- 50 -- 105 -- -- -- --
Issuance of warrant.... -- -- -- -- 5,360 -- -- -- --
Translation
adjustment............ -- -- -- -- -- -- 26 -- --
Net loss............... -- -- -- -- -- (168,801) -- -- --
----- -------- ------ ----- --------- --------- ------- ----- -------
Balance at December 27,
1998 prior to adoption
of liquidation basis of
accounting............. 1,000 60,000 47,121 471 292,787 (385,946) 5,576 (465) --
Adoption of liquidation
basis of accounting:
Close capital
accounts.............. -- (60,000) -- (471) (292,787) 385,946 (5,576) 465 27,577
Adjust net liabilities
in liquidation to fair
value................. -- -- -- -- -- -- -- -- 37,423
----- -------- ------ ----- --------- --------- ------- ----- -------
Net liabilities in
liquidation at December
27, 1998............... 1,000 $ -- 47,121 $ -- $ -- $ -- $ -- $ -- $65,000
===== ======== ====== ===== ========= ========= ======= ===== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-17
<PAGE>
CALCOMP TECHNOLOGY, INC.
(In Process of Liquidation)
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Year Ended December 27, 1998
(In thousands)
<TABLE>
<S> <C>
Operating activities:
Net loss.......................................................... $(168,801)
Adjustments to reconcile net loss to net cash used in operating
activities:
Impairment charge............................................... 112,098
Depreciation and amortization................................... 17,088
Restructuring payments.......................................... (2,805)
Restructuring charge............................................ 1,331
Investee income................................................. (318)
Net changes in operating assets and liabilities................. 3,418
---------
Net cash used in operating activities......................... (37,989)
Investing activities:
Purchase of property, plant and equipment......................... (9,512)
Dividends received................................................ 121
---------
Net cash used in investing activities......................... (9,391)
Financing activities:
Net proceeds from line of credit with Lockheed Martin............. 38,608
Issuance of warrant............................................... 5,360
Exercise of stock options......................................... 105
---------
Net cash provided by financing activities..................... 44,073
Effect of exchange rate changes on cash............................. 93
---------
Change in cash...................................................... (3,214)
Cash at beginning of year........................................... 6,494
---------
Cash at end of year................................................. $ 3,280
=========
</TABLE>
See accompanying notes to consolidated financial statements.
F-18
<PAGE>
CALCOMP TECHNOLOGY, INC.
(In Process of Liquidation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Background and Summary of Significant Developments
The Company has been a supplier of both input and output computer graphics
peripheral products consisting of (i) printers (including plotters), (ii)
cutters, (iii) digitizers, and (iv) large format scanners. In general, the
Company's products were designed for use in computer-aided design and
manufacturing ("CAD/CAM"), printing and publishing, and graphic arts markets,
both domestically and internationally. The Company also maintained service,
product support and technical assistance programs for its customers and sold
software, supplies and after-warranty service.
In recent years, the Company had begun transitioning its traditional pen,
electrostatic and most thermal technology products to inkjet plotters and
printers. Generally, inkjet technology products provide increased user
productivity compared to traditional pen plotters and solid area fill
capability for applications requiring graphic imaging. By the end of 1997, the
Company had substantially completed its strategy to discontinue its non-inkjet
printer and plotter products.
In the fourth quarter of 1997, the Company completed the development of a
new line of wide-format digital printers based on its proprietary piezo inkjet
technology obtained through the acquisition of Topaz Technologies, Inc.
("Topaz") in 1996. This new line of printers was marketed under the
"CrystalJet(TM)" name and targeted at the graphic arts industry. The Company
began shipping the initial market development and demonstration units of these
printers in the first quarter of 1998. Although volume shipments to customers
of CrystalJet products commenced in the second quarter and increased during
the remainder of the fiscal year, the projected profitability of the
CrystalJet products was dependent on achieving greater production volumes and
wider market acceptance than could reasonably be anticipated to occur in the
near term and would have required substantial infusions of new capital which
the Company was unable to obtain. Although the new CrystalJet technology
proved viable, the Company believes that production delays, technical
difficulties in the manufacturing processes and a failure to gain timely
market acceptance resulted in continuing operating losses and negative cash
flow, which materially and adversely affected the Company's business plan for
the CrystalJet technology and in significant part, resulted in the Company's
liquidity crisis discussed further below.
As part of its piezo inkjet technology development, in March 1998, the
Company entered into a Patent License and Joint Development Agreement with
Eastman Kodak Company ("Kodak") that provided an initial payment of $20
million in April 1998 and contemplated an additional $16 million in cash over
the term to be funded incrementally upon the achievement of certain milestones
and the occurrence of certain events. As of March 31, 1999, the Company
believes that the first three milestones totaling $7 million were achieved in
1998; however, only the first $2 million milestone payment has been received
from Kodak because Kodak has disputed the attainment of the third milestone
and withheld the second milestone payment.
In July 1998, the Company engaged Salomon Smith Barney as an investment
advisor to assist the Company in the consideration of strategic alternatives.
In October 1998, the Company made the formal decision to focus its efforts and
resources on the CrystalJet product line and to divest its input device,
cutter, and non-CrystalJet service and support businesses as these businesses
were considered non-strategic. In connection with this decision, the Company
recorded a one-time non-cash impairment charge in the fourth quarter of $72
million to write-down the carrying value of the net assets of these businesses
to their estimated fair value. In addition, the Company evaluated the business
model and strategy of its continuing operations. As a result, in the fourth
quarter, the Company recorded non-cash charges of $40.1 million related to the
impairment of certain long-lived assets, including goodwill.
F-19
<PAGE>
CALCOMP TECHNOLOGY, INC.
(In Process of Liquidation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In July 1998, the Company also entered into an Exchange Agreement with
Lockheed Martin Corporation ("Lockheed Martin"), which is the majority
shareholder, principal creditor and source of capital funding of the Company,
pursuant to which, the Company exchanged $60 million of outstanding debt owed
to Lockheed Martin under a Revolving Credit Agreement for 1,000,000 shares of
Series A Preferred Stock (the "Preferred Stock") of the Company (the "Debt
Exchange"). In connection with the Debt Exchange, the Revolving Credit
Agreement was amended to reduce the amount of borrowing available to the
Company under that agreement from $73 million to $13 million. In August,
September, and November 1998, a related Cash Management Agreement was amended
which ultimately increased the amount of borrowing available to the Company
from $2 million to $30 million under the Cash Management Agreement, thereby
providing a maximum borrowing availability of $43 million to the Company under
these agreements (the "Credit Agreements"). At December 27, 1998, the Company
had drawn a total of $38.1 million against the Credit Agreements.
In a letter dated December 23, 1998, Lockheed Martin notified the Company
that it would not increase the Company's credit availability, needed to fund
the Company's current operations, beyond the $43 million then available under
the Credit Agreements. At such date, the Company anticipated that, to fund
operating requirements, it would require the $4.9 million remaining under the
Credit Agreements in January 1999. On December 28, 1998, the Company indicated
its intent to accept Lockheed Martin's proposal to fund a non-bankruptcy
orderly shut-down of the Company's operations in accordance with a plan to be
proposed by the Company. On January 14, 1999 the Company's directors approved
and submitted the Company's Plan ("Plan for Orderly Shutdown") to Lockheed
Martin for their review and approval. As a result of this liquidity crisis and
after considering its lack of strategic alternatives, in particular, given the
Company's inability to obtain funding from sources other than Lockheed Martin,
on January 15, 1999, the Company announced that it would commence an orderly
shutdown of its operations. Under the Plan for Orderly Shutdown approved by
the Company's Board of Directors, the Company completed a Secured Demand Loan
Facility ("Secured Demand Loan") with Lockheed Martin, pursuant to which
Lockheed Martin agreed to provide, subject to the terms and conditions set
forth in such facility, funding to the Company in addition to the $43 million
available under the Credit Agreements. The Secured Demand Loan would provide
funds to assist the Company in the non-bankruptcy shutdown of its operations
pursuant to the Plan for Orderly Shutdown. In addition, Lockheed Martin agreed
to forebear from exercising its rights and remedies to collect amounts
outstanding under the Credit Agreements until the Secured Demand Loan is
terminated. In connection with the Plan for Orderly Shutdown, it is
anticipated that the Company will cause the dissolution, merger or
consolidation of its subsidiaries with the Company and that the Company,
itself, would then proceed with its own formal winding up and dissolution.
Since the announcement of the Plan for Orderly Shutdown, the Company has
ceased all manufacturing, sales and marketing activities and scaled back
operations to a level designed to allow the Company to sell or liquidate its
assets in a manner that takes into account the interests of the Company's
stockholders, creditors, employees, customers and suppliers. As of March 31,
1999 the Company has consummated or entered into letters of intent for sales
of substantially all of its assets, other than those relating to its
CrystalJet business. However, no assurances can be given that all pending
transactions will be consummated. Additionally, pursuant to the Plan for
Orderly Shutdown, the Company has issued notices to its domestic employees
under the Worker Adjustment and Retraining Notification Act (W.A.R.N.) and, as
of March 31, 1999, has terminated 381 employees, or 74% of the Company's
domestic workforce. Non-U.S. employees have also been terminated or notified
of their scheduled termination under applicable foreign laws. Certain of the
Company's sales and service personnel, pending sales of specified assets, and
an administrative team (including the President, Chief Financial Officer and a
newly appointed Chief Executive Officer) will wind up the operations of the
Company through the shutdown process which is expected to be substantially
completed by July 1999. The Company anticipates that it will be able to
negotiate reasonable settlement amounts with its non-affiliated creditors but
the Company's ability to make payments on the agreed settlement amounts will
depend on receiving sufficient cash from the sale of its assets and securing
additional funding sufficient for the Plan for Orderly Shutdown.
F-20
<PAGE>
CALCOMP TECHNOLOGY, INC.
(In Process of Liquidation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Secured Demand Loan provides for Lockheed Martin to make loans to the
Company from time to time up to an aggregate maximum available amount (the
"Maximum Available Amount"), specified by Lockheed Martin, which may be
increased by Lockheed Martin, in its sole and absolute discretion, upon
requests for borrowing that are in conformity with the cash requirements set
forth in the Plan for Orderly Shutdown. The Maximum Available Amount is
subject to a ceiling ("Maximum Available Amount Ceiling") of $51 million, an
amount based on the Company's initial estimate of loan proceeds needed to
fully fund the Plan for Orderly Shutdown. The Maximum Available Amount,
initially, was set at $11 million. At March 31, 1999, the Maximum Available
Amount had been increased to $15.7 million. Lockheed Martin has the right to
accept or reject, in whole or in part, any request for borrowing based on its
determination, in its sole discretion, as to whether the Company is complying
with, or making reasonable progress with respect to, the Plan for Orderly
Shutdown. Loans under the Secured Demand Loan are to be repaid at the earlier
to occur of (i) the business day following written demand by Lockheed Martin
or (ii) the Termination Date. The "Termination Date" is defined as the earlier
of July 15, 1999 or the date on which Lockheed Martin notifies the Company of
termination based on (x) Lockheed Martin's determination that the Company is
not reasonably complying with, or making reasonable progress with respect to,
the Plan for Orderly Shutdown, which determination may be made in the sole and
absolute discretion of Lockheed Martin, (y) the occurrence of a bankruptcy
event (as defined in the Secured Demand Loan), or (z) the breach by the
Company of the Secured Demand Loan or the accompanying Security Agreement.
Under the Security Agreement, the Company granted to Lockheed Martin a
security interest in all of the assets of the Company to secure the
obligations of the Company to Lockheed Martin under the Secured Demand Loan.
The Secured Demand Loan also provides for certain other obligations of the
Company, including covenants of the Company with respect to periodic notices,
reports and forecasts relating to the Plan for Orderly Shutdown.
The Secured Demand Loan also required the Company to retain an independent
third-party liquidation specialist acceptable to Lockheed Martin to review,
validate and, to the extent deemed necessary by Lockheed Martin in its sole
and absolute discretion, implement the Plan for Orderly Shutdown. In March
1999, Brincko Associates, Inc. was retained as the liquidation specialist
approved by Lockheed Martin, and Mr. John P. Brincko was appointed the Chief
Executive Officer of the Company. After his appointment, the Company conducted
an updated and more detailed analysis of the amount of loan proceeds needed to
fund the Plan for Orderly Shutdown, and revised its estimate of funding needed
under the Secured Demand Loan to approximately $65 million.
As noted above, the Company's latest estimate of funding needed to complete
the Plan for Orderly Shutdown indicates estimated liabilities to be $14
million in excess of amounts expected from asset sales proceeds and the
maximum available under the Secured Demand Loan. As part of its review of the
Company's funding requirements under the Plan for Orderly Shutdown, Lockheed
Martin has agreed to consider increasing the Maximum Available Amount Ceiling,
but there can be no assurance that such increase will be granted or that
Lockheed Martin will authorize the disbursement of all funds potentially
available under the Secured Demand Loan. Additionally, there can be no
assurance that the Company will be able to settle with its creditors at
amounts estimated in the Plan for Orderly Shutdown, that estimated cash
inflows from asset sales will occur, or that actual net cash funding
requirements will not exceed current estimates for any other reason.
Accordingly, there is substantial uncertainty as to whether the Company will
be able to complete the Plan for Orderly Shutdown as originally envisioned. If
the Company is unable to obtain sufficient funds to complete the Plan for
Orderly Shutdown from asset sales proceeds and the Secured Demand Loan or it
is unable to reach reasonable settlements with all of its creditors, the
Company may be forced to seek protection from creditors under Federal
Bankruptcy law or may become subject to an involuntary bankruptcy proceeding.
In the event of an insolvency proceeding, claims of secured creditors, such as
Lockheed Martin, may not be able to be repaid in full and unsecured creditors
may receive little, if anything, for their claims. In any circumstance,
holders of the
F-21
<PAGE>
CALCOMP TECHNOLOGY, INC.
(In Process of Liquidation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Company's common stock are not expected to receive any distributions of funds
or assets and the Plan for Orderly Shutdown does not contemplate any such
distributions.
On January 27, 1999, the Company's Common Stock was delisted from the Nasdaq
National Market System due to the Company's failure to maintain certain
listing requirements. At the present time, the Company's Common Stock
continues to trade on the over-the-counter bulletin board market maintained by
Nasdaq. It is expected that the Company's Common Stock will be deregistered
under Rule 12g-4 of the Securities Exchange Act of 1934 in connection with the
Company's anticipated formal winding up and dissolution.
Liquidation Basis of Accounting
As a result of the Board of Directors approving the Plan for Orderly
Shutdown, the accompanying consolidated statement of net liabilities in
liquidation has been presented based on the liquidation basis of accounting to
provide more relevant information. The consolidated statements of operations
and cash flows for the year ended December 27, 1998 are presented on the going
concern basis of accounting. However, as a result of the Plan for Orderly
Shutdown, comparative information and certain other disclosures are not
meaningful and have not been presented.
The liquidation basis of accounting requires that assets and liabilities be
stated at estimated fair value. Accordingly, the statement of net liabilities
in liquidation at December 27, 1998 reflects assets and liabilities based on
their estimated fair values and estimated settlement amounts. Changes in the
estimated liquidation value of assets and liabilities subsequent to December
27, 1998 will be recognized in the period in which such refinements are known.
Organization and Basis of Presentation
The Company is an 86.7% owned subsidiary of Lockheed Martin. The
consolidated financial statements include the accounts of the Company and its
wholly owned subsidiaries. All significant intercompany transactions and
balances have been eliminated.
The equity method of accounting is used when the Company has a significant,
but less than majority ownership interest in another company. Under the equity
method, original investments are recorded at cost and adjusted by the
Company's share of undistributed earnings or losses of the investee companies,
which is recognized as a component of other income in the consolidated
statements of operations. The Company's investment in NS CalComp Corporation
(NSCC) is accounted for under the equity method. A portion of the profit on
product sales to NSCC is deferred until realized through sales to third party
customers.
Use of Estimates
The preparation of financial statements in accordance with generally
accepted accounting principles under the liquidation basis of accounting
requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Significant
estimates have been made relative to the valuation of all assets and
liabilities of the Company, including, among others, estimates for warranties
and settlement of litigation and long-term lease commitments. Such estimates
have been developed pursuant to the provisions of the Plan for Orderly
Shutdown. Actual results may differ from amounts estimated.
Revenue Recognition
Revenue is recognized from product sales when shipments are made and from
services over the term of the service contract. In certain circumstances, the
Company had provided customers with stock rebalancing and price protection
rights that permit these distributors, retailers, and dealers to return slow-
moving products to the Company for credit or to receive price adjustments if
the Company lowered the price of selected products within certain time
periods.
F-22
<PAGE>
CALCOMP TECHNOLOGY, INC.
(In Process of Liquidation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Fiscal Year
The Company uses a fifty-two, fifty-three week fiscal year which ends on the
last Sunday in December. Fiscal 1998 contained fifty-two weeks.
Stock Option Plans
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
interpretations, in accounting for its employee stock options because, as
discussed in Note 6, the alternative fair value accounting provided for under
Statement of Financial Accounting Standard No. 123, "Accounting for Stock-
Based Compensation," (SFAS 123) requires use of option valuation models that
were not developed for use in valuing employee stock options. Under APB 25,
because the exercise prices of the Company's employee stock options equal the
market price of the underlying stock on the date of grant, no compensation
expense is recognized.
Translation of Foreign Currencies
The assets and liabilities of the Company's foreign subsidiaries, whose cash
flows are primarily in their local currency, have been translated into U.S.
dollars using the current exchange rates at each balance sheet date. The
operating results of these foreign subsidiaries have been translated at
average exchange rates that prevailed during each reporting period.
Exchange gains and losses resulting from foreign currency transactions which
occurred through December 27, 1998 (transactions denominated in a currency
other than that of the entity's primary cash flow) have been included in
operations.
Income Taxes
The Company's operations are included in consolidated federal and combined
state income tax returns of Lockheed Martin. The provision for income taxes is
calculated on a separate return basis, pursuant to Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109). SFAS
109 requires recognition of deferred tax assets and liabilities based on the
difference between the financial and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to reverse.
Per Share Data
Basic net income (loss) per share is computed by dividing income (loss)
available to common stockholders by the weighted average number of common
shares outstanding. Diluted net income (loss) per share includes the effect of
the potential shares outstanding, including dilutive stock options and
warrants, using the treasury stock method. Because the impact of options and
warrants are antidilutive, there is no difference between the loss per share
amounts computed for basic and diluted purposes.
Advertising Costs
The Company expensed advertising costs as incurred. Advertising expenditures
for 1998 were $5,416,000.
Rent Expense
Rent expense was $3,142,000 in 1998.
F-23
<PAGE>
CALCOMP TECHNOLOGY, INC.
(In Process of Liquidation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Supplementary Cash Flow Information
Changes in operating assets and liabilities are as follows for the year
ended December 27, 1998 (in thousands):
<TABLE>
<S> <C>
Changes in operating assets and liabilities:
Accounts receivable............................................ $ 6,444
Accounts receivable from affiliates............................ 2,578
Inventories.................................................... 5,976
Prepaid expenses and other current assets...................... 980
Other assets................................................... (473)
Accounts payable............................................... 2,716
Accounts payable to affiliates................................. (3,089)
Accrued salaries and related expenditures...................... (293)
Deferred revenue............................................... (2,307)
Accrued reorganization costs................................... (1,165)
Income taxes payable........................................... 190
Other liabilities.............................................. (9,081)
Other long-term liabilities.................................... 942
-------
Net changes in operating assets and liabilities.................. $ 3,418
=======
</TABLE>
Net income taxes received from Lockheed Martin and foreign governments were
$591,000 for 1998.
Interest paid was $3,343,000 for 1998.
2. Transactions with Lockheed Martin and Affiliates
Pursuant to a services agreement, Lockheed Martin has billed the Company for
certain corporate general and administrative costs under a formula acceptable
for the United States Department of Defense contracting purposes. Amounts
charged to the Company and included in corporate expenses from Lockheed Martin
were $3.2 million for 1998.
Additionally, the Company has entered into support agreements with Lockheed
Martin. The agreements provide, among other things, that Lockheed Martin
undertake to provide certain services for and at the request of the Company
including, but not limited to, administration of the pension and savings plan,
legal and other general administrative services, and group medical, liability
and workers' compensation insurance. Expenses are allocated to the Company
based on actual amounts incurred on behalf of the Company plus estimated
overhead related to such amounts. Amounts billed to the Company were $4.3
million for 1998. This amount is allocated to various cost elements in the
consolidated statement of operations based on relevant factors which include
headcount and square footage.
Accounts payable to other affiliated companies aggregated $2.5 million as of
December 1998.
During 1998, the Company requested cash as needed to fund operations based
on the Credit Agreements with Lockheed Martin. These requests were processed
as borrowings against the Credit Agreements with Lockheed Martin. Excess funds
were transferred to the Lockheed Martin as payments toward previous
borrowings.
F-24
<PAGE>
CALCOMP TECHNOLOGY, INC.
(In Process of Liquidation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
End user sales to other affiliated companies, including sales to NS CalComp
KK, were $9.5 million during 1998. Sales to related parties have been
consummated at prices and terms consistent with similar transactions with
unrelated third parties.
Accounts receivable from these affiliates related to such sales aggregated
$1.9 million as of December 1998.
Also see Note 1. Background and Summary of Significant Developments.
3. Commitments and Contingencies
Legal
A complaint was filed on October 14, 1997, by Wacom Co., Ltd. and Wacom
Technology Corp. ("Wacom"), against CalComp Inc., a wholly-owned subsidiary of
the Company, in the U.S. District Court for the Central District of
California. The complaint alleged, among other things, that CalComp Inc.'s
sale of ULTRASLATE digitizer tablets infringes three patents and infringes
Wacom's common law trademark, ULTRAPEN. Wacom's request for a preliminary
injunction concerning infringement of two of the three patents was denied by
the Court on February 12, 1998. Wacom is also seeking damages and permanent
injunctive relief with respect to alleged infringement of the three patents,
pre-judgment interest and, among other things, has requested an award of its
attorneys' fees and costs. The Company does not believe that any of the
allegations made by Wacom in this suit have merit and intends to defend itself
against all the claims.
In March 1999, Wacom unsuccessfully sought to enjoin the Company from
proceeding with the Plan for Orderly Shutdown.
On July 8, 1998, Xaar Technology Limited ("Xaar") filed suit in the U.S.
District Court for the Northern District of California, against the Company,
CalComp Inc. (a wholly-owned subsidiary of the Company) and Topaz,
(collectively the "Defendants") alleging that the Defendants' manufacture and
sale of CrystalJet piezoelectric inkjet printheads infringes Xaar's U.S. Pat.
Nos. 4,879,568 and 5,003,679 which cover certain pulsed droplet deposition
apparatus and certain processes for manufacturing pulsed droplet deposition
apparatus. The complaint also alleges that the Defendants have induced others
to infringe these patents. The complaint seeks preliminary and permanent
injunctive relief against infringement of the Xaar patents, increased damages
for willful infringement of those patents, interest and award of its
attorneys' fees and costs. The Company has reviewed these patents and believes
that the Company will prevail over Xaar's claims, that the Company's
piezoelectric technology is proprietary to the Company and that the Company's
manufacture and sale of CrystalJet piezoelectric printheads does not infringe
any valid claims of either of these patents. Further, the Company intends to
defend itself against all claims in this lawsuit.
In March 1999, Xaar unsuccessfully sought to enjoin the Company from
proceeding with the Plan for Orderly Shutdown.
In a separate action, on July 6, 1998, Xaar filed suit in the English High
Court of Justice ("High Court") in London alleging that the Defendants and
CalComp Ltd., a U.K. subsidiary of CalComp Inc., have infringed or caused,
enabled, or assisted others to infringe, European patent (UK) number EP 0 277
703 ("'703 Patent"), which covers certain pulsed droplet deposition apparatus
and certain processes for manufacturing pulsed droplet deposition apparatus,
as a result of sales of the Company's CrystalJet printers in the U.K. The
complaint seeks an injunction and damages or profits resulting from the
alleged infringement and, among other things, interest on any sums due Xaar
and an award of its costs. The Company has reviewed the patent in suit,
believes that the Company will prevail over Xaar's claims in this suit and
that the Company's sale of CrystalJet printers in the
F-25
<PAGE>
CALCOMP TECHNOLOGY, INC.
(In Process of Liquidation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
U.K. does not infringe any valid claims of this patent. The Company has also
counterclaimed for an order revoking the '703 Patent. The Company intends to
defend itself against all claims made and to pursue its counterclaim for the
revocation of the '703 Patent.
On September 7, 1998, the Company, CalComp Inc. and CalComp Ltd., filed an
action in the High Court to revoke Xaar's European Patent (UK) number EP 0 278
590 (the "'590 Patent") which also covers certain pulsed droplet deposition
apparatus and certain processes for manufacturing pulsed droplet deposition
apparatus and which involves technology similar to that in the '703 Patent.
In March 1999, QRS 10-12 (TX), Inc. and QRS 11-5 (TX), Inc. the landlord
under the lease for the Company's former Austin, Texas headquarters
(collectively, "Landlord"), filed suit against the Company in the U.S.
District Court for the Southern District Court of New York claiming damages
equal to the rent due for the remaining term of the lease. The Company had
ceased paying rent in January 1999. The Company has moved to change the
jurisdiction and venue of the case to Texas where it intends to defend itself
against the Landlord's claims. If the Company were to determine that the
Landlord's lawsuit was reasonably likely to result in a judgement that would
compromise the Company's ability to successfully complete the Plan for Orderly
Shutdown, the Company might be forced to seek protection from the Landlord
under Federal Bankruptcy law in order to statutorily limit the Landlord's
claims so that all then remaining creditors could share more fairly in the
Company's then remaining assets, if any. In any event, the Company believes
that any payments to the Landlord by way of judgement or settlement will be
for substantially less than the amount of lease payments that might otherwise
be owing through the term of the lease.
The Company is also party to other legal actions arising from its Plan for
Orderly Shutdown. The Company believes that any such claims in material
amounts are without merit.
Because of their contingent nature, the Company does not believe that the
disposition of any of these matters will have a material adverse effect on its
net liabilities in liquidation, nor will the results of any lawsuits affect
the Company's determination to proceed with the Plan for Orderly Shutdown.
Environmental Matters
In connection with the June 1997 sale of the Company's headquarters facility
in Anaheim, California, the Company agreed to remain obligated to address
certain environmental conditions which existed at the site prior to the
closing of the sale. In addition, Lockheed Martin has guaranteed the
performance of the Company under this environmental agreement.
In 1988, the Company submitted a plan to the California Regional Water
Quality Control Board ("the Water Board") relating to its facility in Anaheim,
California. This plan contemplated site assessment and monitoring of soil and
ground water contamination. In 1997, the Company, at the request of the Water
Board, submitted work plans to conduct off-site water investigations and on-
site soil remediation. In 1998, CalComp conducted an extensive aquifer
characterization and off-site plume delineation investigation. Afterwards, the
Board approved CalComp's work plans for Off-Site Plume Delineation and Source
Area Remediation. The Company has established reserves which it considers to
be adequate to cover the cost of investigations and tests required by the
Water Board, any additional remediation that may be requested and potential
costs of continued monitoring of soil and groundwater contamination, if
required.
The Company believes that it has adequately projected any future
expenditures in connection with environmental matters and does not believe
that the disposition of any of these matters will have a material adverse
effect on its net liabilities in liquidation, nor will any such expenditures
affect the Company's determination to proceed with the Plan for Orderly
Shutdown.
F-26
<PAGE>
CALCOMP TECHNOLOGY, INC.
(In Process of Liquidation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. Other Income, net
Other expense (income) consists of the following components for the year
ended December 27, 1998 (in thousands):
<TABLE>
<S> <C>
The Company's share of equity investee earnings..................... $(318)
Foreign exchange transaction gain................................... (170)
Interest income..................................................... (334)
Other expense, net.................................................. 711
-----
Total............................................................. $(111)
=====
</TABLE>
5. Taxes Based on Income
The income tax benefit consists of the following for the year ended December
27, 1998 (in thousands):
<TABLE>
<S> <C>
Current:
State............................................................... $ (42)
Foreign............................................................. (536)
-----
$(578)
=====
</TABLE>
The following is a reconciliation of the difference between the actual
benefit for income taxes and the benefit computed by applying the federal
statutory tax rate on loss before income taxes for the year ended December 27,
1998 (in thousands):
<TABLE>
<S> <C>
Computed tax benefit using statutory tax rate..................... $(59,268)
Increases (reduction) from:
Non deductible goodwill amortization/write-off.................. 41,546
Operating losses without current tax benefit.................... 13,492
Foreign taxes at rates other than statutory rate................ 3,557
Other........................................................... 95
--------
$ (578)
========
</TABLE>
F-27
<PAGE>
CALCOMP TECHNOLOGY, INC.
(In Process of Liquidation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The primary components
of the Company's deferred tax assets and liabilities at December 27, 1998 are
as follows (in thousands):
<TABLE>
<S> <C>
Deferred tax liabilities related to:
Depreciation methods.......................................... $ 4,284
Prepaid pension costs......................................... 1,017
Excess of purchase book value over tax basis of property,
plant and equipment.......................................... 659
---------
5,960
Deferred tax assets related to:
Net operating loss carryover.................................. 76,894
Foreign net operating loss carryover.......................... 16,046
Inventories................................................... 9,673
Foreign tax credit carryover.................................. 7,255
Accrued liabilities........................................... 3,713
Accumulated postretiree medical benefit obligation............ 2,091
Accounts receivable........................................... 1,445
Accrued compensation and benefits............................. 587
Other, net.................................................... 46
---------
117,750
Valuation allowance for deferred tax assets................... (111,790)
---------
$ --
=========
</TABLE>
The Company has provided a valuation allowance for its net deferred tax
assets, including $18.7 million provided in 1998, because of the likelihood
that it will not be able to realize those assets during their carry forward or
turnaround periods.
The Company has a net operating loss for federal income tax purposes of $186
million expiring in years through 2013. The federal net operating loss also
includes $34 million of expired tax credit carryover that was converted into
net operating loss carry forward in 1998. Also, the Company has foreign net
operating loss carry forwards in various European countries aggregating $41
million. Additionally, the Company has foreign tax credits of $7.3 million
expiring in years 1999 to 2002.
For financial reporting purposes, loss before income included the following
components for the year ended December 27, 1998 (in thousands):
<TABLE>
<S> <C>
Pretax loss:
United States.................................................. $ (157,830)
Foreign........................................................ (11,549)
----------
$ (169,379)
==========
</TABLE>
Undistributed earnings of the Company's foreign subsidiaries amounted to
approximately $16 million at December 27, 1998. Approximately $10 million of
those earnings are considered to be indefinitely reinvested. Distribution of
foreign earnings, including the cumulative translation adjustment component,
would not create a residual U.S. tax liability due to the availability of
foreign tax credits to offset U.S. taxes. Withholding taxes of approximately
$358,000 would be payable upon the remittance of the portion of the foreign
earnings which is considered permanently reinvested.
F-28
<PAGE>
CALCOMP TECHNOLOGY, INC.
(In Process of Liquidation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. Stock Plans
A. Common Stock Reserved
The following shares of common stock are reserved for issuance at December
27, 1998:
<TABLE>
<S> <C>
1996 stock option plan.............................................. 1,964,400
1988 stock option plan.............................................. 75,000
1987 stock option plan.............................................. 52,050
Warrants............................................................ 8,052,500
----------
10,143,950
==========
</TABLE>
B. Stock Option Plans
The Company's Board of Directors has adopted the CalComp Technology, Inc.
1996 Stock Option Plan for Key Employees ("the Plan"). Under the terms of the
Plan, eligible key employees can receive options to purchase the Company's
common stock or stock appreciation rights at prices not less than the fair
value of the Company's common stock on the date of grant. Options and rights
granted under the Plan generally vest over a three year period and expire ten
years after the date of grant or six months after termination of employment.
In connection with its acquisition of Summagraphics Corporation, the Company
assumed 705,662 options outstanding under the Summagraphics 1987 Stock Plan at
prices ranging from $.01 to $9.00 per share and which expire through 2005.
A summary of changes in stock issuable under employee option plans follows:
<TABLE>
<CAPTION>
Weighted
Average
Shares Exercise Price
--------- --------------
<S> <C> <C>
Outstanding at December 28, 1997................... 1,536,450 $2.99
Granted.......................................... 616,300 $3.47
Exercised........................................ (49,700) $2.49
Canceled......................................... (398,400) $4.44
--------- -----
Outstanding at December 27, 1998................... 1,704,650 $2.84
========= =====
</TABLE>
As of December 27, 1998, there were 386,800 shares available for future
grants under the plan.
The weighted average remaining contractual life and weighted average
exercise price of options outstanding and of options exercisable as of
December 27, 1998, were as follows:
<TABLE>
<CAPTION>
Outstanding Exercisable
---------------------------- --------------------
Weighted Weighted Weighted
Number of Average Average Average
Range of Shares Remaining Exercise Shares Exercise
Exercise Prices Outstanding Contractual Life Price Exercisable Price
--------------- ----------- ---------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$1.56 to $2.31...... 645,300 7.90 $1.94 380,900 $1.96
$2.38 to $3.13...... 519,150 8.43 $2.88 174,150 $2.85
$3.31 to $9.00...... 540,200 9.00 $3.87 27,400 $6.28
</TABLE>
F-29
<PAGE>
CALCOMP TECHNOLOGY, INC.
(In Process of Liquidation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Concluded)
Pro forma information regarding net loss and loss per share is required by
SFAS 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that Statement. The fair
value for these options was estimated at the date of grant using a Black-
Scholes option pricing model with the following weighted-average assumptions;
risk-free interest rate of 6.3%; dividends yield of 0%; volatility of the
expected market price of the Company's common stock of 1.2; and a weighted-
average expected life of the option of five years.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options.
The weighted-average fair values of options granted to employees during 1998
were $3.18. For pro forma purposes, the estimated fair value of the Company's
stock-based awards to employees is amortized over the vesting period of the
underlying instruments. The results of applying SFAS 123 to the Company's
stock-based awards to employees would approximate the following for the year
ended December 27, 1998 (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Historical Pro Forma
---------- ---------
<S> <C> <C>
Net loss......................................... $(168,801) $(170,491)
Basic and diluted loss per common share.......... $ (3.58) $ (3.62)
</TABLE>
C. Warrants
The terms of warrants to acquire shares of common stock are as follows at
December 27, 1998:
<TABLE>
<CAPTION>
Warrants Price Expiration Date
-------- ----- ----------------
<S> <C> <C>
8,000,000 $3.88 March 29, 2005
37,500 $1.75 December 6, 2000
15,000 $2.00 March 7, 2006
---------
8,052,500
=========
</TABLE>
F-30
<PAGE>
ANNEX A
PLAN OF COMPLETE LIQUIDATION AND DISSOLUTION OF
CALCOMP TECHNOLOGY, INC.
This Plan of Complete Liquidation and Dissolution (the "PLAN") is intended
to accomplish the complete liquidation and dissolution of CalComp Technology,
Inc., a Delaware corporation (the "COMPANY"), in accordance with Section 275
and other applicable provisions of the General Corporation Law of Delaware
("DGCL") and Sections 331 and 336 (or Sections 332 and 337, as appropriate) of
the Internal Revenue Code of 1986, as amended (the "CODE").
1. Approval and Adoption of Plan
This Plan shall be effective when all of the following steps have been
completed:
(a) Resolutions of the Company's Board of Directors. The Company's Board
of Directors shall have adopted a resolution or resolutions with respect to
the following:
(i) Complete Liquidation and Dissolution: The Board of Directors
shall determine that it is deemed advisable for the Company to be
liquidated completely and dissolved.
(ii) Adoption of the Plan of Liquidation and Dissolution: The Board
of Directors shall approve this Plan as the appropriate means for
carrying out the complete liquidation and dissolution of the Company.
(iii) Sale of Assets: The Board of Directors shall determine that, as
part of the Plan of Liquidation and Dissolution, it is deemed expedient
and in the best interests of the Company to sell all or substantially
all of the Company's assets in order to facilitate liquidation and
distribution to the Company's creditors and stockholders, as
appropriate.
(b) Adoption of This Plan by the Company's Preferred and Common
Stockholders. The holders of a majority of the outstanding shares of the
Company's Series A Cumulative Redeemable Preferred Stock, par value $0.01
per share (the "PREFERRED STOCK") and the holders of a majority of the
outstanding shares of common stock of the Company, par value $0.01 per
share (the "COMMON STOCK"), entitled to vote shall have adopted this Plan,
including the dissolution of the Company and those provisions authorizing
the Board of Directors to sell all or substantially all of the Company's
assets, by written consent or at a special meeting of the stockholders of
the Company called for such purpose by the Board of Directors.
2. Dissolution and Liquidation Period
Once the Plan of Liquidation and Dissolution is effective, the steps set
forth below shall be completed at such times as the Board of Directors, in its
absolute discretion, deems necessary, appropriate or advisable. Without
limiting the generality of the foregoing, the Board of Directors may instruct
the officers of the Company to delay the taking of any of the following steps
until the Company has performed such actions as the Board or such officers
determine to be necessary, appropriate or advisable for the Company to
maximize the value of the Company's assets upon liquidation; provided that
such steps may not be delayed longer than is permitted by applicable law.
(a) The filing of a Certificate of Dissolution of the Company (the
"CERTIFICATE OF DISSOLUTION") pursuant to Section 275 of the DGCL
specifying the date (no later than ninety (90) days after the filing) upon
which the Certificate of Dissolution will become effective (the "EFFECTIVE
DATE"), and the completion of all actions that may be necessary,
appropriate or desirable to dissolve and terminate the corporate existence
of the Company;
(b) The cessation of all of the Company's business activities and the
withdrawal of the Company from any jurisdiction in which it is qualified to
do business, except and insofar as necessary for the sale of its assets and
for the proper winding up of the Company pursuant to Section 278 of the
DGCL;
A-1
<PAGE>
(c) The negotiation and consummation of sales of all of the assets and
properties of the Company, including the assumption by the purchaser or
purchasers of any or all liabilities of the Company, insofar as the Board
of Directors of the Company deems such sales to be necessary, appropriate
or advisable;
(d) The distribution of the remaining funds of the Company and the
distribution of remaining unsold assets of the Company, if any, to its
stockholders pursuant to Sections 4, 7 and 8 below.
If the Board determines to follow the procedures described in Section 280 of
the DGCL, then the additional steps set forth below shall, to the extent
necessary or appropriate, be taken:
(a) The giving of notice of the dissolution to all persons having a claim
against the Company and the rejection of any such claims in accordance with
Section 280 of the DGCL;
(b) The offering of security to any claimant on a contract whose claim is
contingent, conditional or unmatured in an amount the Company determines is
sufficient to provide compensation to the claimant if the claim matures,
and the petitioning of the Delaware Court of Chancery to determine the
amount and form of security sufficient to provide compensation to any such
claimant who has rejected such offer in accordance with Section 280 of the
DGCL;
(c) The petitioning of the Delaware Court of Chancery to determine the
amount and form of security which would be reasonably likely to be
sufficient to provide compensation for (i) claims that are the subject of
pending litigation against the Company, and (ii) claims that have not been
made known to the Company or that have not arisen, but are likely to arise
or become known within five (5) years after the date of dissolution (or
longer in the discretion of the Delaware Court of Chancery), each in
accordance with Section 280 of the DGCL;
(d) The payment, or the making of adequate provision for payment, of all
claims made against the Company and not rejected, in accordance with
Section 280 of the DGCL;
(e) The posting of all security offered and not rejected and all security
ordered by the Court of Chancery in accordance with Section 280 of the
DGCL; and
(f) The payment, or the making of adequate provision for payment, of all
other claims that are mature, known and uncontested or that have been
finally determined to be owing by the Company.
Notwithstanding the foregoing, the Company shall not be required to follow
the procedures described in Section 280 of the DGCL, and the adoption of the
Plan of Liquidation and Dissolution by the Company's preferred and common
stockholders shall constitute full and complete authority for the Board of
Directors and the officers of the Company, without further stockholder action,
to proceed with the dissolution and liquidation of the Company in accordance
with any applicable provision of the DGCL, including, without limitation,
Section 281(b) thereof, including the adoption of a plan of distribution as
contemplated by such section.
1. Authority of Officers and Directors
After the Effective Date, the Board of Directors and the officers of the
Company shall continue in their positions for the purpose of winding up the
affairs of the Company as contemplated by Delaware law. The Board of Directors
may appoint officers, hire employees and retain independent contractors in
connection with the winding up process, and is authorized to pay to the
Company's officers, directors and employees, or any of them, compensation or
additional compensation above their regular compensation, in money or other
property, in recognition of the extraordinary efforts they, or any of them,
will be required to undertake, or actually undertake, in connection with the
successful implementation of this Plan. Adoption of this Plan by holders of a
majority of the outstanding shares of Preferred Stock and Common Stock shall
constitute the approval of the Company's stockholders of the Board of
Directors' authorization of the payment of any such compensation.
The adoption of the Plan of Liquidation and Dissolution by the Company's
preferred and common stockholders shall constitute full and complete authority
for the Board of Directors and the officers of the Company, without further
stockholder action, to do and perform any and all acts and to make, execute
and deliver any and all agreements, conveyances, assignments, transfers,
certificates and other documents of any kind and
A-2
<PAGE>
character which the Board or such officers deem necessary, appropriate or
advisable: (i) to sell, dispose, convey, transfer and deliver the assets of
the Company, whether before or after the Effective Date, (ii) to satisfy or
provide for the satisfaction of the Company's obligations in accordance with
Sections 280 and 281 of the DGCL, (iii) to distribute all of the remaining
funds of the Company and any unsold assets of the Company to the Company's
preferred stockholders (up to the $60.0 million, plus accrued and unpaid
dividends, liquidation preference of the Preferred Stock), plus accrued and
unpaid dividends due thereon, with the remaining amounts, if any,
distributable to the common stockholders, and (iv) to dissolve the Company in
accordance with the laws of the State of Delaware and cause its withdrawal
from all jurisdictions in which it is authorized to do business.
2. Conversion of Assets Into Cash or Other Distributable Form
Subject to approval by the Board of Directors, the officers, employees and
agents of the Company, shall, as promptly as feasible and whether before or
after the Effective Date, proceed to collect all sums due or owing to the
Company, to sell and convert into cash any and all corporate assets and, out
of the assets of the Company, to pay, satisfy and discharge or make adequate
provision for the payment, satisfaction and discharge of all debts and
liabilities of the Company pursuant to Section 2 above, including all expenses
of the sale of assets and of the liquidation and dissolution provided for by
the Plan of Liquidation and Dissolution.
3. Professional Fees and Expenses
It is specifically contemplated that the Board of Directors may authorize
the payment of a retainer fee to a law firm or law firms selected by the Board
for legal fees and expenses of the Company, including, among other things, to
cover any costs payable pursuant to the indemnification of the Company's
officers or members of the Board provided by the Company pursuant to its
Certificate of Incorporation and Bylaws or the DGCL or otherwise.
In addition, in connection with and for the purpose of implementing and
assuring completion of this Plan, the Company may, in the absolute discretion
of the Board of Directors, pay any brokerage, agency and other fees and
expenses of persons rendering services to the Company in connection with the
collection, sale, exchange or other disposition of the Company's property and
assets and the implementation of this Plan.
4. Indemnification
The Company shall continue to indemnify its officers, directors, employees
and agents in accordance with its Certificate of Incorporation and Bylaws and
any contractual arrangements, for actions taken in connection with this Plan
and the winding up of the affairs of the Company. The Board of Directors, in
its absolute discretion, is authorized to obtain and maintain insurance as may
be necessary, appropriate or advisable to cover the Company's obligations
hereunder.
5. Liquidating Trust
The Board of Directors may establish a Liquidating Trust (the "LIQUIDATING
TRUST") and distribute assets of the Company to the Liquidating Trust. The
Liquidating Trust may be established by agreement with one or more Trustees
selected by the Board. If the Liquidating Trust is established by agreement
with one or more Trustees, the trust agreement establishing and governing the
Liquidating Trust shall be in form and substance determined by the Board of
Directors. In the alternative, the Board may petition the Delaware Court of
Chancery for the appointment of one or more Trustees to conduct the
liquidation of the Company subject to the supervision of the Court. Whether
appointed by an agreement or by the Court, the Trustees shall in general be
authorized to take charge of the Company's property, and to collect the debts
and property due and belonging to the Company, with power to prosecute and
defend, in the name of the Company, or otherwise, all such suits as may be
necessary or proper for the foregoing purposes, and to appoint an agent under
it and to do all other acts which might be done by the Company that may be
necessary, appropriate or advisable for the final settlement of the unfinished
business of the Company.
A-3
<PAGE>
6. Liquidating Distributions
Liquidating distributions, in cash or in kind, shall be made from time to
time after the adoption of the Plan of Liquidation and Dissolution to the
holders of record, at the close of business on the date of the filing of a
Certificate of Dissolution of the Company as provided in Section 2 above, of
outstanding shares of stock of the Company, according to the priorities of the
various classes of the Company's stock and pro rata in accordance with the
respective number of shares then held of record; provided that in the opinion
of the Board of Directors adequate provision has been made for the payment,
satisfaction and discharge of all known, unascertained or contingent debts,
obligations and liabilities of the Company (including costs and expenses
incurred and anticipated to be incurred in connection with the sale of assets
and complete liquidation of the Company). All determinations as to the time
for and the amount and kind of distributions to stockholders shall be made in
the exercise of the absolute discretion of the Board of Directors and in
accordance with Section 281 of the DGCL.
Any assets distributable to any creditor or stockholder of the Company who
is unknown or cannot be found, or who is under a disability and for whom there
is no legal representative, shall escheat to the state or be treated as
abandoned property pursuant to applicable state law.
7. Amendment, Modification or Abandonment of Plan
If for any reason the Company's Board of Directors determines that such
action would be in the best interests of the Company, it may amend, modify or
abandon the Plan of Liquidation and Dissolution and all action contemplated
thereunder, notwithstanding stockholder approval, to the extent permitted by
the DGCL; provided, however, that the Company will not amend or modify the
Plan of Liquidation and Dissolution under circumstances that would require
additional stockholder approval under the DGCL and the federal securities laws
without complying with the DGCL and the federal securities laws. Upon the
abandonment of the Plan of Liquidation and Dissolution, the Plan of
Liquidation and Dissolution shall be void.
8. Cancellation of Stock and Stock Certificates
Following the dissolution of the Company, the Company's stock transfer books
shall be closed and the Company's capital stock and stock certificates
evidencing the Company's Preferred Stock and Common Stock will be treated as
no longer being outstanding.
9. Liquidation under Section 331 and 336 (or Sections 332 and 337, as
appropriate)
It is intended that this Plan shall be a plan of complete liquidation within
the terms of Sections 331 and 336 (or Sections 332 and 337, as appropriate) of
the Code. The Plan of Liquidation and Dissolution shall be deemed to authorize
such action as, in the opinion of counsel for the Company, may be necessary to
conform with the provisions of said Sections 331 and 336 (or Sections 332 and
337, as appropriate).
10. Filing of Tax Forms
The appropriate officer of the Company is authorized and directed, within
thirty (30) days after the effective date of the Plan of Liquidation and
Dissolution, to execute and file a United States Treasury Form 966 pursuant to
Section 6043 of the Code and such additional forms and reports with the
Internal Revenue Service as may be appropriate in connection with this Plan
and the carrying out thereof.
A-4
<PAGE>
THE NUMBER FOR THIS DOCUMENT IS:
S:\\114\\99040013.14C2
(originally s/c from 118\\99010004.STM3)
